If you are considering transferring funds from a pre-tax IRA or 401(k) account to a Roth account, financial experts warn that President Trump’s “Big Beautiful Bill” may make this conversion more complicated.
A Roth conversion involves transferring funds from a pre-tax or non-deductible individual retirement account to a Roth IRA, where the account funds can enjoy tax-free growth. However, the trade-off is that the converted balance will be subject to regular income tax payments.
Experts point out that Trump’s new tax policy may make some investors more willing to do Roth conversions, but high income levels may affect eligibility for certain tax deductions.
Judy Brown, a Certified Financial Planner (CFP) working at SC&H Group in Washington, D.C. and Baltimore, emphasized the importance of considering the long-term state and federal tax implications when evaluating Roth conversions.
For example, if you are nearing Medicare age or already enrolled, an increase in income may raise your income-related monthly adjustment amount (IRMAA), affecting the premiums for Medicare Parts B and D.
Brown, also a Certified Public Accountant, stated that this strategy requires “considering many different aspects to find the best solution for each client.”
Patrick Huey, owner of Victory Independent Planning in Portland, Oregon, and a CFP, emphasized that the core of Roth conversion is “tax bracket management.”
He explained that in Roth conversions, advisors typically aim to have clients’ income just “fill up the lowest tax bracket” for the year.
Federal tax brackets are calculated based on taxable income, which equals adjusted gross income (AGI) minus either the standard deduction or itemized deductions (whichever is higher).
Prior to the signing of the “Big Beautiful Bill” by Trump, lower federal income tax rates were set to expire after 2025, leading to higher tax liabilities on Roth conversion account balances.
While the bill made lower tax rates permanent, additional tax benefits such as deductions for seniors, tip income, overtime pay, and car loan interest deductions are temporary and have varying income limits.
Experts note that Trump’s tax reduction measures are effective from 2025 to 2028, providing more flexibility for Roth account conversions.
Ashton Lawrence, a CFP at Mariner Wealth Advisors in Greenville, South Carolina, stated that once these tax cuts expire, you may end up “paying more for the same Roth account conversion.”
Experts caution that while Trump’s new tax measures may provide more room in lower tax brackets, the higher income from Roth account conversions may affect eligibility for deductions.
For example, the additional $6,000 deduction for seniors starts to phase out or even cancel altogether when adjusted gross income exceeds $75,000 for single filers or $150,000 for married couples filing jointly.
Brown noted that even without the $6,000 senior deduction, converting funds at a 22% or 24% tax rate now is still a wise choice, as it is more cost-effective than falling into the 30% tax rate in the future to meet Required Minimum Distributions (RMDs). Most retirees must start withdrawing minimum savings amounts from their pre-tax retirement accounts starting at age 72 to avoid IRS penalties.