NEWS
Retirees have a limited-time chance to reduce income taxes through Roth conversions, thanks to the One Big Beautiful Bill (OBBB) passed in July 2025. A new senior deduction and stable tax brackets create an ideal planning opportunity—but the window closes after 2028.
The OBBB introduced a new $6,000 deduction for individuals aged 65 and older, available from 2025 through 2028. Unlike the standard deduction, this senior deduction is a separate line that can reduce taxable income by up to $12,000 for married couples filing jointly. It’s especially valuable when coordinating Roth conversions with other retirement income.
The deduction phases out at a rate of 6% once modified adjusted gross income (MAGI) exceeds $75,000 for single filers and $150,000 for joint filers. That makes it critical for retirees to plan conversions carefully to avoid phasing out the deduction while increasing income.
Roth conversions, which move funds from traditional IRAs into Roth IRAs, generate taxable income in the year they occur. But they also allow for tax-free withdrawals later, assuming the five-year rule is met. The senior deduction helps offset the conversion tax burden—if used strategically and within the right marginal tax bracket.
One major pitfall in conversion planning is the risk of triggering Medicare’s Income-Related Monthly Adjustment Amount (IRMAA). These surcharges raise Medicare Parts B and D premiums when modified adjusted gross income (MAGI) crosses specific thresholds.
In 2025, IRMAA kicks in at $206,000 for married couples and $103,000 for single filers. A Roth conversion that pushes income even $1 over those limits could result in more than $2,400 in extra annual premiums. Combined with conversion taxes, the effective cost could exceed 30%.
Some retirees may also overlook how Roth conversions interact with Social Security benefits and other sources of taxable gains. This is particularly relevant for those who rely on taxable brokerage accounts or hold IRA funds with significant investment growth.
State tax laws add complexity. California, for example, treats converted amounts as fully taxable income, while states like Texas or Florida impose no state income tax. This difference can significantly alter the overall tax implications of a conversion and may outweigh the federal benefit for certain households.
The Tax Cuts and Jobs Act (TCJA) reduced federal income tax brackets through 2025. The OBBB extended those rates, locking in lower brackets through 2028. This creates a four-year window for many retirees to convert Traditional IRAs at lower effective tax rates.
Tax professionals note that individuals in the 12% or 22% brackets today may face higher effective rates in future years as Required Minimum Distributions (RMDs) begin or tax laws evolve. The current landscape allows taxpayers to roll over assets into Roth IRAs now, reducing future tax-deferred growth in traditional retirement accounts.
Additionally, Roth IRAs offer significant long-term advantages. These include no RMDs for the original IRA owner, tax-free growth, and qualified distributions for heirs. For retirees concerned about estate tax exposure, moving assets from tax-deferred accounts to Roth retirement accounts may also reduce the taxable estate.
“Roth conversions are one of the most powerful tools we have today,” said a financial advisor specializing in retirement topics. “But they’re not automatic wins. Done wrong, you can lose the senior deduction or trigger thousands in Medicare premiums.”
Some tax advisors recommend using 2025 as a test year. Converting $10,000 to $30,000 allows retirees to assess the actual impact on their MAGI and estimate taxes using IRS Form 1099-R. This also helps avoid surprises related to tax withholding, especially for those not making estimated tax payments.
Advisors caution that the five-year holding period applies to each separate conversion. Withdrawals made before the end of that period may be subject to early withdrawal penalties, even if the IRA owner is over age 59½. The pro-rata rule also complicates conversions when non-deductible contributions are present.
To avoid missteps, professionals often utilize modeling tools that factor in state taxes, capital gains taxes, and anticipated changes in market cycles. The goal is not just short-term tax savings, but optimizing withdrawals across decades while complying with federal law and tax reporting requirements.
With the OBBB deduction set to expire in 2028, many retirees are proactively modeling Roth conversion strategies to optimize their tax planning. These plans often take into account Social Security timing, taxable income projections, and the transition from accumulation to withdrawal phase across employer-based retirement plans and taxable accounts.
Some are also factoring in the 10-year distribution rule for non-spouse beneficiaries. A well-timed Roth conversion today could mean tax-free withdrawals for heirs tomorrow—particularly important for those anticipating a transfer of sizable retirement assets.
Given how quickly tax policy can change, financial professionals are treating these four years as a unique and actionable opportunity. While strategies like the backdoor Roth IRA and in-service Roth conversion remain available under current law, future legislative changes could limit these options. Experts advise individuals to evaluate the benefits now, rather than wait for changes that may reduce flexibility or increase overall tax liability.
The following official and nonpartisan sources were referenced to ensure accuracy and provide further reading on tax policy, Roth conversions, and retirement planning:
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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