Roth Conversions After the Trump Bill: Big Gains or Big Mistakes?

How the New Tax Law Transforms Your Retirement Possibilities

The landscape of retirement planning underwent a dramatic transformation on July 4, 2025, when President Donald Trump signed the One Big Beautiful Bill Act (OBBBA). This legislation doesn't merely extend tax cuts—it fundamentally reshapes how Americans should approach retirement savings, particularly when considering Roth conversion strategies.

For decades, conventional wisdom told us to defer taxes during our working years, then withdraw funds during retirement when we'd presumably fall into lower brackets.

Consider this sobering reality: millions of diligent savers who've built substantial traditional IRAs and 401(k)s may face higher tax brackets in retirement than during their working years. I recently met with a couple who had faithfully maximized their pre-tax retirement accounts for decades, accumulating $2.5 million.

They were shocked to learn that Required Minimum Distributions (RMDs) beginning at age 73, combined with Social Security benefits, would actually push them into higher tax brackets than they experienced during their working lives.

This predicament isn't rare. It represents the largest transfer of retirement wealth in history—not to heirs, but directly to the IRS. Fortunately, the OBBBA creates a strategic window for tax planning that, when properly leveraged, could save substantial sums over your lifetime.

The New Tax Reality Under OBBBA

The most significant aspect of the OBBBA for retirement planning is its permanent extension of the Tax Cuts and Jobs Act (TCJA) brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

What previously faced a December 31, 2025, expiration date has now become the indefinite tax structure, providing unprecedented clarity for long-term planning.

This permanence represents a dramatic shift from previous uncertainty. Prior to this legislation, we faced the looming threat of reverting to higher pre-TCJA rates in 2026, creating urgency around Roth conversions during the 2018-2025 window. Now, with these rates permanently codified, we can take a more measured, strategic approach to retirement tax planning.

The OBBBA does introduce a subtle change starting in 2026: the 10% and 12% brackets will receive an extra inflation adjustment bump, slightly expanding their reach. While these adjustments might seem minor, they create incremental opportunities for tax-efficient Roth conversions for middle-income taxpayers.

2025 Federal Tax Brackets Under OBBBA

Understanding these permanent brackets provides the foundational framework for all Roth conversion planning. However, the legislation introduces several other provisions with far more substantial impacts on conversion strategies.

Critical Provisions That Transform Roth Conversion Planning

While the stable tax bracket structure forms the foundation, several specific OBBBA provisions dramatically alter the Roth conversion landscape:

The Expanded SALT Deduction and Its Hidden Complexity

Perhaps the most significant change for many taxpayers is the State and Local Tax (SALT) deduction expansion. Under the TCJA, deductions for state and local taxes were capped at $10,000—a particular burden for residents of high-tax states like California, New York, and New Jersey.

Key SALT deduction changes:

• Cap increased from $10,000 to $40,000 starting in 2025
• Annual 1% increase from 2026-2029
• Reverts to $10,000 in 2030
• Phases down for high earners (starting at $500,000 MAGI)
• 30% reduction rate during phaseout

This phaseout creates a stealth tax increase for those in the affected range. For every additional dollar of income recognized—including from a Roth conversion—their SALT deduction decreases by 30 cents. At the 35% tax bracket, this creates an effective marginal rate of 45.5% (35% × 1.3) on conversion dollars.

For high-income earners contemplating Roth conversions, timing becomes crucial. Converting amounts that push you into this phaseout range could substantially increase the effective tax cost, potentially undermining the long-term benefits of the conversion.

The New Senior Deduction Window

Adults age 65 and older receive a temporary gift from the OBBBA: an additional $6,000 deduction ($12,000 for married couples where both spouses qualify) available from 2025 through 2028. This deduction applies whether you itemize or take the standard deduction, offering substantial tax savings.

Senior deduction details:

• $6,000 per person age 65+ ($12,000 for eligible married couples)
• Available 2025-2028 only
• Phases out at 6% rate over $75,000 MAGI (single) or $150,000 (joint)
• Completely eliminated at $175,000 (single) or $250,000 (joint) MAGI
• Available with standard or itemized deductions

This creates important considerations for seniors planning Roth conversions. Converting too much in a single year could trigger this phaseout, effectively adding a 6% surcharge to the conversion tax cost.

Consider a married couple, both over 65, with $150,000 MAGI before any conversions. A $50,000 Roth conversion would increase their MAGI to $200,000, reducing their senior deduction by 6% × ($200,000 - $150,000) = $3,000 per person, or $6,000 total. In the 22% tax bracket, this phaseout adds an additional $1,320 in taxes beyond the direct tax on the conversion amount.

This complexity makes multi-year conversion strategies potentially more valuable than large, single-year conversions during the 2025-2028 window.

Impact of Senior Deduction Phaseout on Roth Conversion Tax Cost

Charitable Contribution and Itemized Deduction Changes

The OBBBA introduces a 0.5%-of-AGI floor on charitable deductions beginning in 2026. This means only contributions exceeding 0.5% of your Adjusted Gross Income qualify for deduction. While seemingly small, this floor reduces the tax efficiency of charitable giving, especially for those whose giving is modest relative to their income.

Additionally, taxpayers in the 37% bracket face a new limitation that effectively caps the tax benefit of itemized deductions at 35% rather than 37%. This subtle change reduces the deduction value by about 5.4% for top bracket taxpayers.

These provisions generally make 2025 more attractive for both charitable giving and Roth conversions compared to subsequent years, particularly for high-income households.

The Four Strategic Phases of Roth Conversion Planning

Given these complex provisions, effective Roth conversion planning requires a life-stage approach aligned with the OBBBA framework:

Pre-Retirement Preparation (2-5 Years Before Retirement)

The years immediately preceding retirement often represent a critical planning window. During this phase, you should:

Pre-retirement conversion preparation checklist:

• Maximize HSA contributions (triple tax advantage)
• Model your projected retirement "tax valley"
• Consider a five-year Roth conversion ladder for early retirees
• Evaluate income deferral opportunities
• Analyze future RMD projections

Early Retirement Conversions (Years 1-5 of Retirement)

For many retirees, the early retirement period represents the optimal conversion window. With career income ended but RMDs not yet required, income often temporarily drops, creating space in lower tax brackets.

Early retirement conversion considerations:

• Balance ACA subsidy thresholds (if applicable)
• Coordinate with Social Security claiming strategy
• Use taxable account withdrawals strategically
• Monitor annual bracket thresholds carefully
• Consider tax-loss harvesting to offset conversion income

Delaying Social Security benefits creates additional conversion space. Each year of delay increases your eventual benefit by approximately 8%, while simultaneously allowing larger Roth conversions at lower tax rates before Social Security income begins.

Pre-RMD Optimization (5 Years Before RMDs Begin)

As you approach age 73, when RMDs become mandatory, tax planning takes on increased urgency:

Pre-RMD conversion strategies:

• Implement tax bracket "smoothing" techniques
• Consider Qualified Charitable Distributions (70½+)
• Target conversions to reduce future RMDs
• Analyze Medicare IRMAA threshold impacts
• Evaluate partial conversions vs. all-at-once approach

Post-RMD Strategic Conversions

Even after RMDs begin at 73, tactical conversion opportunities may still exist:

Post-RMD conversion opportunities:

• Convert during market corrections (more shares at same tax cost)
• Pair conversions with charitable giving years
• Consider conversions for estate tax planning
• Convert assets with highest growth potential
• Evaluate qualified charitable distributions as RMD alternatives

Finding Your Roth Conversion Sweet Spot

Most conventional Roth conversion advice suggests simply "filling your tax bracket"—converting just enough to reach the top of your current marginal rate. While this approach provides a useful starting point, it drastically oversimplifies the complex realities of the OBBBA tax landscape.

Your true Roth conversion "sweet spot" depends on numerous interconnected factors:

Steps to identify your conversion sweet spot:

1. Create a multi-year tax projection through age 90+
2. Identify your lowest-bracket years
3. Calculate interaction effects with benefits/deductions
4. Establish healthcare threshold triggers
5. Develop year-by-year conversion targets
6. Review and adjust annually

The Hidden Traps and Phaseout Dangers

While Roth conversions offer powerful long-term tax advantages, the OBBBA creates several danger zones where additional conversion income produces unexpectedly high marginal tax rates:

Conversion tax traps to avoid:

• SALT deduction phaseout zone ($500,000-$600,000 MAGI)
• Senior deduction phaseout range (65+ during 2025-2028)
• Social Security benefit taxation thresholds
• Medicare IRMAA premium surcharge brackets
• ACA subsidy reduction/elimination thresholds
• Alternative Minimum Tax (AMT) exposure zones

Case Studies: Roth Conversion Strategies in Action

Case Study 1: Retired Seniors Maximizing the New Senior Deduction

Robert and Susan, both 67, have $2.5 million in traditional 401(k)s and receive $65,000 combined annual Social Security benefits. They live in a high-tax state, paying approximately $22,000 annually in state and local taxes.

Under the OBBBA, they qualify for both the increased SALT deduction ($40,000) and the new senior deduction ($12,000 combined). However, the senior deduction phases out between $150,000-$250,000 of MAGI for joint filers.

Robert and Susan's income sources:

• Social Security: $65,000 annually (mostly taxable)
• Pension: $12,000 annually
• Traditional 401(k)s: $2.5 million total
• State/local taxes: $22,000 annually

Their optimal conversion strategy requires careful balancing of these provisions:

In 2025, they convert $73,000, bringing their total MAGI to $150,000 ($65,000 taxable Social Security + $12,000 pension + $73,000 conversion). This amount fully preserves their senior deduction while utilizing their expanded SALT deduction.

For 2026-2028, they implement a "bracket-bumping" strategy, converting just enough to remain at the upper limit of the 22% bracket while accounting for the senior deduction phaseout. This results in progressively smaller conversions: $70,000 in 2026, $67,000 in 2027, and $65,000 in 2028.

Starting in 2029, after the senior deduction expires, they increase conversions to $85,000 annually, maximizing the 22% bracket during the final years of the expanded SALT deduction.

This strategy converts approximately $360,000 to Roth accounts by 2029, reducing their RMDs by roughly $14,000 annually starting at age 73, keeping them in the 22% bracket throughout retirement.

The effective tax rate on these conversions averages just 18.7% when accounting for all deductions and phaseouts—significantly lower than the 25-28% rates they would likely face on RMDs without this planning.

Robert & Susan's Roth Conversion Strategy (2025-2029)

Case Study 2: Early Retiree Maximizing the "Tax Valley"

Michael, age 60, recently retired with $1.2 million in traditional IRAs and $500,000 in taxable accounts. He plans to delay Social Security until age 70 and has adequate taxable funds for living expenses until then.

Pre-OBBBA, Michael faced uncertainty about future tax rates after 2025, creating pressure to convert substantial amounts before the scheduled tax increase. Under the OBBBA's permanent rates, he can now implement a more measured approach.

Michael's situation:

• Age: 60, recently retired
• Traditional IRAs: $1.2 million
• Taxable accounts: $500,000
• Social Security strategy: Delay until age 70
• Current tax bracket: 22%

For 2025-2027, Michael converts $80,000 annually, filling his 22% bracket but staying below the 24% threshold. In 2028-2030, as his taxable account depletes, he reduces conversions to $60,000 annually to remain in the 22% bracket.

By age 70, when Social Security begins, he will have converted approximately $420,000 to Roth accounts. This strategy reduces his traditional IRA balance enough that his RMDs at 73 won't push him into higher tax brackets when combined with Social Security.

The projected outcome shows Michael saving approximately $137,000 in lifetime taxes compared to making no conversions, while also providing tax-free Roth withdrawals for unexpected expenses or opportunities later in retirement.

Case Study 3: High-Income Earner in the SALT Phaseout Range

Jennifer, 55, earns $520,000 annually as an executive and plans to retire at 60. She has $1.8 million in traditional retirement accounts and pays $45,000 in state and local taxes.

With MAGI of $520,000, Jennifer falls directly within the SALT deduction phaseout range ($500,000-$600,000). The phaseout reduces her SALT deduction by $6,000 (30% of $20,000 over the $500,000 threshold), limiting her deduction to $34,000 instead of the full $40,000.

Jennifer's SALT deduction calculation:

• Base SALT deduction cap: $40,000
• Amount over threshold: $20,000 ($520,000 - $500,000)
• Reduction percentage: 30%
• Reduction amount: $6,000 (30% × $20,000)
• Actual SALT deduction: $34,000 ($40,000 - $6,000)

For Jennifer, Roth conversions during her working years would be extremely tax-inefficient. Each dollar converted would:

• Be taxed at her top 35% federal rate
• Reduce her SALT deduction by 30 cents, creating an additional 10.5% tax effect (30% × 35%)
• Result in an effective 45.5% marginal tax rate

Instead, Jennifer's optimal strategy defers conversions until retirement, when her income drops below the phaseout threshold. In her first retirement year (2030), her income drops to $75,000 from pension and investment income. Despite the reduced SALT cap returning to $10,000 that year, her effective marginal rate on conversions falls to just 22%, less than half her working-years rate.

By waiting until retirement to begin conversions, Jennifer saves approximately $211,000 in conversion taxes compared to implementing conversions during her high-income working years.

Case Study 4: Pre-RMD Retiree Facing Large Future Distribution Requirements

William, 72, has a $3 million traditional IRA and will begin RMDs next year. He receives $40,000 annually from Social Security and has adequate taxable investments for supplemental income.

William's retirement situation:

• Age: 72 (RMDs begin next year)
• Traditional IRA: $3 million
• Social Security: $40,000 annually
• First RMD (projected): $120,000
• Current tax bracket: 22%
• Projected bracket with RMDs: 24% (potentially reaching 32%)

Without intervention, William's first RMD will be approximately $120,000, immediately pushing him into the 24% tax bracket when combined with his Social Security income. As his RMDs grow with age, he could eventually reach the 32% bracket in his early 80s.

Under the OBBBA, William implements an aggressive conversion strategy in his final pre-RMD year:

He converts $170,000 in 2025, utilizing the full 24% bracket. While this creates a substantial one-year tax bill, it reduces his future RMDs by approximately $6,800 in the first year alone, with increasing benefits in subsequent years.

The long-term analysis shows William saving approximately $285,000 in lifetime taxes through this strategy, despite paying higher taxes in the conversion year. Additionally, his heirs will inherit more Roth assets, eliminating tax obligations on those inherited funds.

Projected RMD Reduction From William's Conversion Strategy

Year-by-Year Roadmap for Roth Conversions (2025-2030)

The OBBBA creates a distinct timeline for optimal Roth conversion planning:

2025: The Pivotal First Year

As the first year under the new law, 2025 presents unique opportunities:

2025 conversion opportunities:

• Expanded $40,000 SALT deduction begins
• New $6,000 senior deduction ($12,000 MFJ) available
• No 0.5% charitable contribution floor yet
• Current AMT exemption thresholds still in effect
• Window before more restrictive provisions begin

2026-2028: The Senior Deduction Window

These years represent a critical planning period for those 65 and older:

2026-2028 conversion considerations:

• Senior deduction still available (through 2028)
• Monitor phaseout effects carefully
• 0.5% AGI floor on charitable contributions in effect
• Lower AMT exemption thresholds apply
• Smaller bracket adjustments for 10% and 12% brackets
• Potential for "bracket-bumping" strategies

2029: Final Year of Expanded SALT Deduction

This transition year presents special considerations:

2029 conversion planning opportunities:

• Senior deduction expires
• Final year of expanded SALT deduction
• Consider accelerating itemized deductions
• Potential for larger conversions (no senior deduction phaseout)
• Last chance before SALT cap reverts to $10,000

2030 and Beyond: Adjusted Long-Term Planning

With key temporary provisions expired:

2030+ conversion planning factors:

• SALT deduction reverts to $10,000
• Focus shifts to traditional bracket management
• Review and adjust long-term tax projections
• Consider state relocation strategies
• Monitor for new tax legislation

Implementation and Practical Considerations

Executing an effective Roth conversion strategy requires careful attention to several practical matters:

Roth conversion implementation checklist:

• Use comprehensive tax projection software
• Document your conversion strategy rationale
• Maintain detailed records of all transactions
• Plan for cash flow to pay conversion taxes
• Review and adjust strategy annually
• Consider state tax implications
• Consult with tax and financial professionals

Consider the cashflow implications of paying conversion taxes. Ideally, conversion taxes should be paid from non-retirement accounts to maximize the amount transferred to the tax-advantaged Roth environment.

Review and potentially adjust your strategy annually. Tax laws evolve, personal circumstances change, and market fluctuations create new opportunities. Flexibility remains essential even with the OBBBA's more permanent tax structure.

Key Takeaways

The One Big Beautiful Bill Act fundamentally transforms Roth conversion planning through permanent tax rates and complex new provisions. The legislation creates substantial opportunities but also hidden tax traps for the unwary.

Key Roth conversion planning principles under OBBBA:

• Identify your personal "tax sweet spot" years for optimal conversions
• Navigate temporary provisions strategically (SALT, senior deduction)
• Calculate effective marginal rates including phaseout effects
• Implement case-specific planning based on your unique situation
• Leverage the permanent tax rates for measured, long-term planning
• Recognize the value beyond tax savings (flexibility, RMD reduction, estate benefits)

While conventional wisdom suggested rushing Roth conversions before TCJA expired, the OBBBA's permanent extension of those tax rates allows for more measured, strategic conversion planning focused on your personal circumstances rather than looming tax increases.

The true value of Roth conversions extends beyond tax savings to include increased flexibility, reduced RMDs, and potentially significant estate planning benefits for your heirs. In an increasingly uncertain tax future, this flexibility may prove to be your retirement plan's most valuable asset.

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