How Will the OBBBA Era Affect Roth Conversions?

The One Big Beautiful Bill Act (OBBBA) introduced several permanent and temporary provisions that may impact retirement planning in the next few years. While there are no direct changes to IRA rules, contribution limits, or conversion requirements, new opportunities and considerations may impact Roth conversion planning. We’ll outline the significant changes you can discuss with your financial advisor, along with potential strategies that may make a conversion more effective.

How Do OBBBA’s Temporary Provisions Affect Roth Conversion Timing?

The OBBBA made the 2017 Tax Cut and Jobs Act (TCJA) individual income tax brackets permanent, while including several temporary deductions, such as:

• 2025–2028: The senior deduction of $6,000 or $12,000 for married filers.
• 2025–2028: Deductions for eligible overtime and tips for hourly workers.
• 2025–2029: The state and local tax deduction (SALT) increased to $40,000, reverting to $10,000 in 2030.
• 2026: The qualified business income deduction (QBI) of 20% becomes permanent.

In addition to reducing taxable income for many clients, these new provisions provide more tax rate clarity and a framework to spread liability out across a few years by timing and managing the amount of the conversion in lower-income years, while available. 

Still, while it’s important to maximize these opportunities before they expire, integrative coordination and analysis are required annually to get it right. For example, it’s important to consider whether delaying a conversion in anticipation of future tax legislation or weighing the benefits of a conversion versus the value of certain deductions. We recommend working with your advisor to forecast and understand the tax and cash flow impacts of a conversion in any year to maximize your benefits.

What New Deductions Under OBBBA Can Lower My Tax Bracket for Conversions?

In addition to the new deductions mentioned above, the bill also provides new tax breaks that can further help reduce taxable income, including:

• The standard deduction has been increased to $15,750 for singles or $31,500 for married filers.
• The charitable deduction for non-itemizers, effective 2026, at $1,000 for singles and $2,000 for married filers.
• The child tax credit increased to $2,200 per child.

With these deductions combined, many taxpayers will be in lower tax brackets, an opportune time to do a Roth conversion. We recommend working with your advisor to estimate your new tax bracket, as it may be reduced significantly with applied deductions. You can then forecast the after-tax impacts to determine the best strategy going forward.

How Do Income Phaseouts Affect My Roth Conversion Strategy?

It’s still important to note that many of these provisions come with income phaseouts, or limits at which point deductions are reduced or eliminated. As a Roth conversion increases taxable income in the year it’s done, it’s essential to proactively plan to stay within the income thresholds to benefit from temporary deductions. Here are a few things to keep in mind:

• The senior deduction phases out at $75,000 for singles, $150,000 for married couples, and entirely at $175,000 for singles and $250,000 for married filers.
• The SALT cap deduction is reduced for single and married filers with incomes between $500,000 and $600,000. Those with income above $600,000 will receive a $10,000 deduction.
• The QBI deduction will begin to phase out at incomes of $197,300 for singles and $394,600 for married filers. The deduction will be lost entirely when incomes exceed $247,300 or $494,600 for joint filers.

We recommend discussing different scenarios with your financial advisor to understand how various-sized conversions may impact deductions in a given year. Your plan may require additional tax planning strategies to manage your taxable income, such as charitable giving, retirement plan contributions or withdrawals, and tax-loss or gain harvesting.

How Can CCMI Help Plan My Roth Conversion Under OBBBA?

As legislation affecting your finances evolves, we are here to help you stay current and identify opportunities and challenges to consider. In collaboration with you and your tax professional, we can provide a strategic path forward to help ensure you’re appropriately timing a Roth conversion and capturing benefits while they’re available.

If you have questions about year-end planning, we’re happy to help guide you through the incentives, trade-offs, and adjustments necessary for various scenarios. Contact us today to learn more.