If you have a lot of accumulated assets in tax-deferred accounts like 401(k)s or IRAs, you may be considering whether to convert a portion of those assets to a Roth account. Having assets in a Roth can offer many benefits, including the potential for tax-free withdrawals in retirement1 and the ability to gift an income-tax-free asset to your heirs.
But if you’re considering a conversion, there are many factors to weigh, including your current and anticipated future tax rates and the future tax rate of your beneficiaries. It’s also important to be mindful of tax brackets, surtaxes, and surcharges since the additional income from the conversion can potentially trigger a surcharge on Medicare premiums known as IRMAA (Income-Related Monthly Adjustment Amount), as well as an additional tax on net realized capital gains, dividends, and interest income called the Net Investment Income Tax, or NIIT. However, conversions may lower your future RMDs and taxable account income (assuming assets were used to pay for the conversions), so your future IRMAA surcharges may be reduced.
The tax bill that was passed in July 2025 has added another factor for higher-income investors to consider around Roth conversions. “It’s another wrinkle in an already-complicated decision process,” says Mitch Pomerance, CFP ®, CFA, a vice president, financial consultant at Fidelity. Now, additional income may also cause you to lose tax deductions, essentially leading to a higher effective tax rate on the converted amount.
Deductions at risk
The tax legislation passed in July 2025 made permanent the existing 7 tax brackets and added some new deductions and limitations relevant to investors considering Roth conversions. These included the senior tax deduction, an additional $6,000 deduction for those age 65 and older, which is effective through 2028; raising the state and local tax (SALT) deduction, which had previously been capped at $10,000, to $40,000 through 2029; and adding an itemized deduction cap that limits the value of itemized deductions to 35% of every dollar of income, effective in 2026.
Both the new deductions phase out at higher incomes. The senior deduction phases out starting at $150,000 of modified adjusted gross income (MAGI) for married couples filing jointly and $75,000 for single filers; income above the senior deduction threshold reduces the deduction by 6% of the excess income, until the benefit fully disappears at $175,000 for single filers and $250,000 for married couples filing jointly.
The SALT deduction phases out starting at modified adjusted gross income $500,000, or $250,000 in the case of a married individual filing separately (married couples filing separately are subject to a $20,000 deduction cap). Income above the SALT threshold reduces the deduction by 30% of the excess income, until a minimum of $10,000 for incomes of $600,000 and above. For tax years 2026 through 2029, the SALT deduction and income phase-out levels will be increased 1% a year. Starting in tax year 2030, the SALT deduction will return to a maximum of $10,000 for all income levels.
The scenarios below show how the tax deductions lost from a Roth conversion could potentially impact hypothetical investors.
Scenario #1: The retirement income valley
For some retirees, the best time to convert assets to a Roth is during the “retirement income valley,” or the retirement years before required minimum distributions (RMDs) begin at age 73 (beginning in 2033, RMDs will start at age 75). That’s because you’ll generally pay ordinary income tax on the converted amount in the year of conversion. If you can avoid taking withdrawals from tax-deferred accounts during the "valley years" you can potentially keep your tax rate low, allowing you to reduce taxes on the converted assets. “Some of my retired clients have years where they are just living off their brokerage account assets and paying a 15% tax rate on long-term capital gains or dividends,” says Pomerance.
Consider a hypothetical married couple, Taylor and Tim, both age 65, who have $1.5 million in traditional IRAs and $500,000 in brokerage and cash-equivalent accounts. In 2025, the couple received $150,000 from Tim’s pension and withdrew $25,000 from a money market account. They’re considering a $100,000 Roth conversion, with the goal of reducing their tax-deferred assets and thus their RMDs later in retirement.
With no Roth conversion:
Income: $150,000
Standard deductions: $34,700 (standard deduction of $31,500 + senior deduction of $3,200)
Additional senior deductions: $12,000 ($6000 per person)
Total potential deductions: $46,700
Taxable income: $103,300
Taxes owed: $12,554
With a $100,000 Roth conversion:
Income: $250,000 ($150,000 earned income + $100,000 Roth conversion)
Standard deductions: $34,700
Additional senior deductions: $0 (fully phased out)
Total potential deductions: $34,700
Taxable income: $215,300
Taxes owed: $37,366
Note: This example assumes no other income or deductions, and calculates taxes owed using a progressive tax rate from 10% to 24%.
With the Roth conversion, Taylor and Tim would increase their income by $100,000. However, by losing the additional senior deductions, they would increase their taxable income by $112,000—and the loss of that deduction would cause them to pay an additional $2,856 in taxes on the “extra” $12,000.
Scenario #2: Passing tax-free assets to heirs
Following the passage of the SECURE Act in December 2019, inherited Roth or traditional IRAs or 401(k)s are subject to RMDs, and beneficiaries must completely withdraw all funds from the account within 10 years of the death of the original account holder (with some exceptions for eligible designated beneficiaries). While heirs will generally pay their ordinary income tax rates on traditional IRA RMDs and withdrawals, Roth distributions are generally tax-free.1 “Given that, some people in higher brackets still consider Roth conversions, so it becomes a tax-free legacy asset,” says Pomerance.
A hypothetical married couple, Jordan and James, have $2 million in non-deductible traditional IRAs,2 which they plan to leave to their children. In 2025, the couple expect to have $500,000 in earned income and $110,000 in potential deductions, $50,000 of which is state and local taxes. They’re considering a $100,000 Roth conversion to fill the 32% bracket, with the goal of gifting their heirs an asset with the potential for tax-free growth and withdrawals.
With no Roth conversion:
Earned income: $500,000
SALT deduction: $40,000 (maximum)
Other deductions: $60,000
Total potential deductions: $100,000
Taxable income: $400,000 (32% marginal tax bracket)
Tax owed: $82,126
With a $100,000 Roth conversion:
Income: $600,000 ($500,000 earned income + $100,000 Roth conversion)
SALT deduction: $10,000
Other deductions: $60,000
Total potential deductions: $70,000
Taxable income: $530,000 (35% marginal tax bracket)
Taxes owed: $124,594
By doing the Roth conversion, Jordan and James triggered a SALT deduction phaseout. So while their income increased by $100,000, their taxable income increased by $130,000. That essentially makes their effective tax rate on the converted amount roughly 42.5%—far higher than the 32% bracket they were originally targeting to fill.
Considering a conversion?
If you want to convert assets to a Roth and are close to the thresholds for the SALT or senior deduction you may want to consider strategies to preserve those deductions.
Try a partial conversion. You aren’t required to convert your entire IRA balance in a single year. Instead, you can do a partial conversion—that is, convert a portion of the assets over several years, thereby spreading out the tax payments.
It’s also important to keep in mind that the SALT cap threshold isn’t a hard number—it’s a phase-out whereby every $1 in MAGI reduces the deduction by $0.30, until it reaches a floor of $10,000. To use the hypothetical example above, if Jordan and James had $450,000 in earned income and only $20,000 in state and local taxes, they would still receive their full SALT deduction of $20,000 until their MAGI reached $566,667—meaning they could convert $116,667 of IRA assets to a Roth without reducing their applicable SALT deduction.
Delay transactions. If you’re selling a house, doing freelance work, or plan to sell stock that has increased in value, consider whether you can collect the money, or time the sale, until just after the calendar year.
Look for opportunities for tax-loss harvesting. This strategy may allow you to sell investments that are down and potentially use those losses to offset realized investment gains and use what's left over to offset up to $3,000 of ordinary income each year for single filers and married couples filing jointly. Net realized losses that exceed $3,000 can be carried forward into subsequent years.
Bunch charitable donations. If you’re charitably minded, you can consider concentrating multiple years’ worth of giving in a single tax year that you want to make a conversion, a strategy known as bunching. If you normally claim the standard deduction and don’t realize tax savings on your charitable donations, bunching may provide you with the opportunity to itemize your deductions and realize tax savings.
If you elect to pursue a bunching strategy, you may want to consider establishing a donor-advised fund (DAF). When you contribute to a DAF, you are eligible for a tax deduction in the year you make the contribution, regardless of when the charities receive the funds. Furthermore, your heirs can be named as successor to the DAF, enabling them to continue your legacy of philanthropy indefinitely.
Final thoughts
The new tax law has made the decision around Roth conversions more nuanced and requires careful coordination with broader financial goals, income timing, and estate planning. Before you determine your next step, consult with a financial professional and work together to identify the best approach for your specific situation.