By: Reed C. Fraasa, CFP®, RLP®, AIF®
As we enter the transformative periods of 2025 and 2026, retirement planning strategies—especially Roth IRA conversions—deserve renewed attention. The recently enacted One Big Beautiful Bill Act of 2025 (OBBBA) has reshaped the U.S. tax landscape. While much of the new law extended or clarified existing provisions, the ripple effects on Roth conversions are significant.
What Is a Roth IRA Conversion?
At its core, a Roth conversion moves funds from a traditional IRA or qualified retirement plan into a Roth IRA. The amount converted is included in your taxable income for that year. Once in the Roth, growth and qualified withdrawals are tax-free, and Roth IRAs are not subject to required minimum distributions (RMDs).
Conversions are most attractive if you expect higher tax rates later in life, want more flexibility in retirement, or wish to leave tax-advantaged assets to heirs.
What OBBBA Did—And Didn’t—Change
1. Tax Brackets Made Permanent
One headline feature of OBBBA was the decision to make the Tax Cuts and Jobs Act (TCJA) individual brackets permanent. That means the seven-bracket structure (10%, 12%, 22%, 24%, 32%, 35%, 37%) continues indefinitely, adjusted for inflation.
What this means for conversions: while brackets themselves didn’t “compress,” the interaction of new deductions, credits, and phase-outs can cause your effective marginal tax rate to climb quickly. A Roth conversion adds taxable income, which may reduce the value of deductions or trigger hidden surtaxes.
2. Backdoor Roths Still Allowed
Early speculation suggested that backdoor and mega-backdoor Roth strategies might be eliminated. The final law did not touch them. High-income individuals can still make nondeductible traditional IRA contributions and then convert them or use after-tax contributions in 401(k) plans if the plan allows.
That said, the aggregation rule still applies: if you hold both pre-tax and after-tax IRA dollars, the IRS looks at all IRAs together when determining how much of your conversion is taxable. Importantly, this does not apply to qualified plans like 401(k)s.
3. No New Age or Income Limits
Conversions have been open to all taxpayers since 2010, when income limits were lifted. OBBBA did not reintroduce any caps. There are no age-based restrictions on who can convert, and no ceiling on the amount.
However, conversion income affects other areas:
It counts toward Medicare IRMAA (Income Related Monthly Adjustment Amount), which uses a two-year lookback on modified adjusted gross income (MAGI). A large 2025 conversion could increase your Part B/D premiums in 2027.
It may push you out of eligibility for credits or deductions tied to AGI.
4. Temporary Deductions and Phase-Outs
OBBBA introduced or expanded several deductions and credits, some of which are temporary (for example, enhanced senior deductions and childcare credits). Because these provisions phase out at certain income levels, Roth conversions may indirectly reduce your benefit or push you above a threshold.
5. State Property Tax Relief Programs
Most states’ property tax relief programs are phased out at higher incomes. New Jersey has three property tax relief programs: Senior Freeze, ANCHOR, and StayNJ. Roth conversions may indirectly reduce your benefit or push you above a threshold.
Why 2025 and 2026 Are Critical
While OBBBA settled some uncertainty by making TCJA tax rates permanent, it also introduced temporary enhancements that will sunset in a few years. This creates a window of opportunity in 2025–2026:
If you anticipate higher tax rates later in retirement, conversions can lock in today’s rates.
If you’re on Medicare, you may want to time conversions to manage IRMAA surcharges.
If you benefit from temporary deductions, you’ll want to weigh the loss of those benefits against the long-term value of Roth assets.
In short, the law didn’t make Roth conversions harder to do—but it made the planning more layered.
Strategies for Navigating Roth Conversions
As a financial advisor, I often frame Roth conversions as a multi-year tax strategy, not a one-time event. Here are some practical approaches for 2025 and 2026:
1. Consider Partial Conversions
Instead of converting a large balance in one year, spread it over multiple years. This helps you “fill up” lower tax brackets without spilling into higher effective rates triggered by phase-outs.
2. Coordinate With Other Income Events
Selling a business, exercising stock options, or beginning Social Security can all spike income. If you anticipate a high-income year, it may be better to delay a conversion—or conversely, accelerate it into a lower-income year.
3. Be Mindful of Medicare IRMAA
Remember the two-year lookback: 2025 income affects 2027 premiums. A large conversion could bump you into a higher surcharge bracket, adding thousands of dollars in future healthcare costs. Model the combined impact before converting.
4. Pair With Tax-Loss Harvesting
Consider realizing investment losses in the same year as a Roth conversion if you have taxable accounts. Those losses can offset other capital gains and soften the tax blow from added ordinary income.
5. Don’t Forget the Five-Year Rule
Each conversion has a five-year clock before funds can be withdrawn penalty-free (unless you’re 59½ or older). Planning the timing of withdrawals is just as important as timing the conversion itself.
6. Use Charitable Strategies for Balance
Qualified charitable distributions (QCDs) from IRAs at age 70½ or older can reduce taxable RMDs. If you balance conversions with QCDs later, you can smooth lifetime taxes while supporting causes you care about.
7. Work With a Professional
The interplay of deductions, surtaxes, IRMAA, and multi-year income planning makes DIY conversion planning risky. A financial advisor or tax professional can run scenario modeling, showing how $50,000, $100,000, or $200,000 in conversions affect your overall tax and retirement picture.
Final Thoughts
The One Big Beautiful Bill Act did not end Roth conversions or make them inaccessible. Instead, it cemented tax rates, preserved backdoor strategies, and introduced new deduction landscapes, making timing and sizing conversions more critical than ever.
For many households, 2025 and 2026 represent a sweet spot: the stability of permanent TCJA brackets combined with temporary OBBBA provisions. But as with most things in retirement planning, the opportunity is in the details.
If you’re considering a Roth conversion, don’t go it alone—partner with a professional who understands the tax code and how it fits into your larger financial life. With foresight and careful planning, you can still harness the power of Roth accounts to build a more flexible and tax-efficient retirement.
Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.
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The above article was written with the assistance of artificial intelligence (AI).