This article is reprinted with permission from Esq. Wealth Management, Inc.
At EsqWealth, we recently completed a comprehensive financial plan for a couple in their early 50s with approximately $2.5 million in 401(k) and IRA accounts. Our original analysis—completed before the passage of the One Big Beautiful Bill Act (OBBBA)—projected that by strategically converting their tax-deferred retirement accounts to Roth IRAs over time, they could increase their after-tax wealth by around $20 million by age 92.
It was a stunning result. No change to their investment portfolio. No additional risk. Just a tax strategy executed over time.
Now that OBBBA has been signed into law, several new provisions (including deduction phaseouts, income thresholds, and temporary timing windows) could significantly impact the effectiveness, timing, and size of Roth conversions. Some provisions create even more opportunity. Others introduce traps that could quietly erode the benefits if not navigated carefully.
So the question is not just whether Roth conversions make sense, but whether they still make sense now, under a new and far more complex tax environment.
In this article, we walk through how Roth conversions work, when they are most effective, how OBBBA has changed the landscape, and the five steps every high-net-worth family should consider before pulling the trigger.
What Is a Roth Conversion and Why Might It Be Worth Millions?
A Roth conversion moves money from a traditional IRA or 401(k) (which grows tax-deferred but is fully taxable upon withdrawal) into a Roth IRA (where all future growth and withdrawals are tax-free). You pay income tax on the amount you convert in the year of the conversion, but once it is in the Roth, you never pay tax on it again under current law.
For high-net-worth families, this strategy can unlock a range of significant financial benefits:
No Required Minimum Distributions (RMDs):
Roth IRAs are not subject to forced withdrawals beginning at age 73, unlike traditional IRAs. This gives you far more control over your taxable income in retirement. With a traditional IRA, the government eventually requires you to begin withdrawing money whether you need it or not, creating taxable income you might have otherwise avoided or deferred.
No Impact on Medicare Premiums or Social Security Taxation:
Withdrawals from traditional IRAs increase your Modified Adjusted Gross Income (MAGI). MAGI is essentially your Adjusted Gross Income (AGI) with certain deductions added back in, including tax-exempt interest and IRA contributions. Your MAGI determines whether you will face Medicare surcharges known as IRMAA (Income-Related Monthly Adjustment Amounts).
IRMAA is a penalty added to your Medicare Part B and Part D premiums if your income exceeds specific thresholds. For example, if your MAGI exceeds around $206,000 for a married couple filing jointly in 2025, you could be charged hundreds of dollars more per month for the same Medicare coverage.
Roth IRA withdrawals do not count as MAGI, which means they can help you avoid these surcharges. They also do not affect how much of your Social Security is taxed. With traditional IRAs, up to 85 percent of your Social Security benefits can be taxed if your income exceeds certain thresholds. Roth income avoids that altogether.
Tax-Free Legacy:
Heirs who inherit Roth IRAs can withdraw funds income-tax-free, provided the account meets the five-year rule. However, under the SECURE Act, most non-spouse beneficiaries must fully distribute the account within 10 years of the original owner’s death. In contrast, inherited traditional IRAs are taxed as ordinary income to beneficiaries, which can result in a sizable tax bill and a reduced inheritance. For families aiming to leave assets to children or grandchildren, Roth IRAs offer a cleaner, more tax-efficient legacy strategy.
Locks In Known Tax Rates:
Many investors expect tax rates to rise in the future, especially if federal debt and deficits continue to grow. By converting at today’s known rates, you insulate yourself from future tax uncertainty. Think of it as paying a known bill today rather than writing a blank check to the IRS in your 70s or 80s.
And to put today’s tax environment in perspective, in the early 1960s, the top federal income tax rate was a staggering 91 percent, and even the lowest bracket was taxed at 20 percent. Today, the top marginal rate is 37 percent, with many retirees in the 22 to 24 percent range. Locking in these historically low rates through Roth conversions could prove to be one of the most valuable tax decisions of your lifetime.
How OBBBA Changes the Roth Conversation Analysis
OBBBA made several tax provisions permanent and introduced many new ones, with far-reaching implications for Roth conversions. While Roths remain powerful, OBBBA adds new wrinkles that make detailed modeling and timing more essential than ever.
1. Senior Deduction Phase-Out:
While OBBBA did not eliminate the taxation of Social Security benefits as once promised, it introduced a new Senior Deduction that may reduce or offset some of the tax burden—but only for retirees below certain income levels and only for a limited number of years. For high-net-worth families, the old rules still apply.
Starting in 2025, individuals age 65 or older receive a new $6,000 enhanced standard deduction (or $12,000 for couples). But this deduction phases out for MAGI over $150,000 and is fully eliminated at $250,000 for joint filers. Roth conversions that increase MAGI could unintentionally disqualify clients from this deduction, effectively increasing the cost of the conversion by $12,000 in lost deductions.
2. SALT Deduction Cap Increase and Phase-Out:
OBBBA raised the State and Local Tax (SALT) deduction cap from $10,000 to $40,000, retroactive to 2025. However, this expanded deduction phases out between $500,000 and $600,000 of MAGI for married couples filing jointly. If a Roth conversion pushes income into that phase-out zone, you could lose up to $30,000 in deductions, pushing your effective tax rate well above the statutory bracket.
3. MAGI-Based Triggers Are Now More Critical:
MAGI now determines eligibility for multiple tax benefits, including IRMAA surcharges, Social Security taxation, senior deductions, SALT caps, and even certain charitable deductions. Roth conversions increase MAGI, so the ripple effects must be evaluated across these variables and across multiple years. One year’s strategy could unintentionally undo years of planning if executed without awareness of these thresholds.
4. Timing Windows Matter More Than Ever:
Many OBBBA provisions (such as the enhanced senior deduction and expanded SALT cap) are temporary and phase in or out between 2025 and 2028. That means Roth conversion timing must be planned on a multi-year basis. In some cases, it may make sense to delay conversions to preserve deductions. In others, accelerating income could capture benefits before they phase out. This is no longer a year-by-year decision—it is a tax chess game played across several tax seasons.
5. Software Modeling Is Recommended
The OBBBA provisions introduced a maze of interdependent rules, including temporary timelines, income cliffs, and deduction phase-outs, that make it risky to rely on rule-of-thumb planning. Maximizing the value of Roth conversions now should incorporate professional-grade modeling software, not napkin math. Even a small misstep could reduce or eliminate valuable deductions, increase Medicare premiums, or trigger unintended tax consequences.
So… How Do You Actually Do This?
Here is a five-step roadmap you can use to evaluate and implement a Roth conversion strategy, whether you are working with an advisor or prefer to manage your own financial plan.
Step 1: Identify Your Roth Conversion Window
Your “conversion window” is the stretch of years when your income is lower than it will be in the future, but your retirement savings still have time to grow. For many, this begins in your 50s or early 60s and extends until age 73 when RMDs begin.
Even if you are still working, you may have space in your current tax bracket to convert a portion of your IRA each year—especially if your earned income is declining or you are living off taxable assets and cash reserves.
With OBBBA in place, starting in 2025, those over age 65 receive an enhanced standard deduction, which phases out starting at $150,000 MAGI. If your conversion window overlaps with these years, make sure to account for this potential loss of deduction before converting—even modest amounts could disqualify you. Also remember that the window often closes at age 73 when RMDs begin and your income spikes.
Step 2: Know Your Tax Bracket and Your Next One
Start by reviewing your current marginal tax bracket. Then identify where the next bracket begins. That gap is your conversion opportunity.
Let’s say you are in the 24 percent tax bracket and the 32 percent bracket starts $90,000 higher. You could convert up to $90,000 this year and pay the lower rate, avoiding higher taxes in the future.
This is also the time to consider other tax-sensitive factors:
- Crossing IRMAA income thresholds, which can increase your Medicare premiums
- Triggering taxation of your Social Security benefits
- Losing deductions, credits, or other tax benefits as your income climbs
A well-structured Roth conversion strategy fills the bracket without triggering avoidable phaseouts or penalties.
Beyond ordinary brackets, OBBBA introduced new deduction cliffs—like the expanded SALT cap that phases out between $500,000–$600,000 of MAGI. That means your effective marginal rate could be far higher than your statutory bracket once these losses are factored in.
Step 3: Create a Multi-Year Conversion Schedule
Rather than converting everything at once, consider a phased plan that fills your target tax bracket annually without triggering phaseouts of significant tax benefits under OBBBA . That allows your converted dollars to begin compounding in a Roth account while avoiding a large tax hit in any single year.
Consider not only tax brackets but also the temporary windows created by OBBBA: for example, the enhanced SALT deduction disappears after 2028. Your conversion schedule should be modeled to “harvest” those benefits in years they exist, or avoid crowding into phaseout zones during those same years. For example, if you expect MAGI to rise in 2027–2028 due to RMDs or asset sales, it might be better to front-load conversions in 2025–2026 to stay under the SALT cap.
Step 4: Coordinate With Social Security Timing
Although you can begin claiming Social Security as early as age 62, delaying your benefit until full retirement age (typically 66 to 67) or even age 70 provides a double benefit. First, the longer you wait, the higher your monthly benefit (roughly 8 percent more per year after full retirement age). Second, postponing Social Security reduces your taxable income, which gives you more headroom to complete Roth conversions at favorable rates before IRMAA and Social Security taxation thresholds become relevant.
For many affluent families, delaying Social Security and prioritizing Roth conversions during those early retirement years can be a highly efficient strategy. Delaying Social Security may also help you stay under OBBBA-related phaseouts, like the senior deduction or enhanced SALT caps, by keeping your MAGI lower during the early retirement years.
Step 5: Watch Your Medicare Premiums (IRMAA)
IRMAA surcharges are not trivial—they can add thousands of dollars annually to your Medicare premiums. While Roth conversions can push you above the IRMAA threshold in the short term, the long-term benefit is that your future income will be lower (since you will no longer be taking RMDs from traditional IRAs). In effect, you may pay more now to avoid paying more every year for the rest of your retirement.
Because OBBBA ties multiple deductions and benefits to MAGI, even modest conversions can now tip the scale into IRMAA territory or trigger other lost benefits. The marginal cost of conversion can therefore be higher than expected unless modeled precisely.
This is another reason a well-timed, multi-year conversion strategy pays off.
Final Thoughts: Taxes Are Largely Optional When You Plan Ahead
A Roth conversion strategy isn’t one-size-fits-all. It demands thoughtful timing, tax sensitivity, and a long-term perspective. But for high-net-worth investors—especially those with sizable pre-tax retirement balances—it can be one of the most effective ways to reduce lifetime taxes, sidestep future penalties, and preserve more wealth for heirs.
Whether you’re collaborating with an advisor or navigating the path independently, the key insight remains: Tax planning isn’t about what you earn—it’s about what you keep.
At EsqWealth, Roth conversion analysis is just one component of a comprehensive financial strategy. If you’re exploring ways to optimize your retirement and legacy outcomes, we can help you evaluate the trade-offs and integrate the right approach into your broader plan.
The information above is not intended to and should not be construed as specific advice or recommendations for any individual. The opinions voiced are for general information only and are not intended to provide, and should not be relied on for tax, legal, or accounting advice. To discuss specific recommendations for any unique situation, please feel free to contact us.
