If you thought Roth conversions were confusing before, buckle up, because it just got more complex. President Donald Trump’s “One, Big, Beautiful Bill Act” (OBBBA) has changed the tax playbook so much that nearly every tax maneuver has been altered.
This is especially true if you’re over the age of 65 and not yet retired. You and your financial adviser now face a messy and tangled web of tax credits, income thresholds and time limits that could make the Roth conversion maneuver even more tricky to pull off. Making the wrong move could cost you thousands of dollars extra.
Here’s what you need to know to prevent that.
As a quick refresher, a Roth conversion is a financial strategy that involves moving money from a traditional IRA or 401(k) plan to a Roth IRA. The intention is to pay taxes upfront on the amount of money converted but allow your funds to grow tax-free over the long-term.
The maneuver’s success hinges on timing and your effective tax rates over several years. In other words, it’s all about “tax bracket management,” CFP Patrick Huey, owner of Victory Independent Planning in Portland, Oregon, told CNBC [1].
Advisors like him often encourage clients to “fill up the lowest brackets” with conversion income before climbing into higher tax territory. Managing tax brackets like this was already difficult, but Trump’s new tax rules have made the maneuver a lot more tricky to pull off.
Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead
The One, Big, Beautiful Bill Act has dropped a slew of new tax rules on Americans of all ages. But this legislation also includes several incentives for American seniors, who are most likely to be considering Roth conversions.
For instance, Americans over the age of 65 now qualify for an additional seniors tax deduction, according to the IRS [2]. Individuals can claim up to $6,000 in this new deduction while a married couple filing their taxes together can claim up to $12,000 combined.
This gives seniors more room to pull off a Roth conversion. However, this new deduction has both a time and income limit. The tax break is only available from from 2025 through 2028. The deduction also phases out beyond a modified adjusted gross income (MAGI) of $75,000 for individuals and $150,000 for couples. It is fully phased out at $150,000 for individuals and $250,000 for couples [1].
