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Financial Planning · Retirement Planning · Roth IRA · Tax Reform
President Donald Trump’s recently enacted One Big Beautiful Bill Act (OBBBA) has permanently extended lower tax rates through 2028, easing immediate pressure for Roth IRA conversions but introducing new complexities and strategic opportunities for savers and financial advisors.
The OBBBA makes lower tax rates "permanent" through 2028, according to the Wall Street Journal, removing the previous 2026 expiration deadline that drove many to convert. Despite this, the fundamental mechanics of Roth conversions, moving funds from traditional IRAs to tax-free Roth IRAs, remain unchanged.
Ryan McKeown, an advisor with Wealth Enhancement Group, told the Journal that the decision hinges on comparing current conversion tax rates to future withdrawal rates, considering factors like state taxes and legislative changes. The bill also introduces temporary tax breaks from 2025 through 2028 for older Americans, tipped workers, overtime pay, and car loan interest, which create "room" for conversions within lower tax brackets, as reported by CNBC.
However, these breaks generally do not lower adjusted gross income, impacting Medicare premiums, Social Security taxes, and the 3.8% net investment income surtax, and phase out for single filers above $75,000 AGI or married couples above $150,000 AGI. Judy Brown, a planner at SC&H Group, told CNBC that converting funds at 22% or 24% rates now makes sense to avoid higher future rates on large pre-tax withdrawals, especially considering the impact of Required Minimum Distributions (RMDs) at age 73 and benefits for heirs, including reducing the "widow's penalty" and lowering overall family tax burdens for children inheriting IRAs.
