Roth IRA Conversion decisions have always been complicated and subjective, based on expectations for changes to the U.S. Tax Code, plus a variety of personal considerations. Prior to passage of SECURE ACT 1.0 in 2019, Roth IRA Conversions could be Recharacterized (reversed in whole or in part), in the year following the Conversion. Elimination of that provision elevated uncertainty of Roth Conversion outcomes.

One primary justification for Roth Conversions involves anticipation of tax rates rising in the future. Pay tax now, save tax later. Unless Congress acts during 2025, personal income tax rates, lowered by TCJA (Tax Cuts and Jobs Act of 2017), will increase in 2026. That would favor 2025 Roth Conversions. However, since the 2024 election, there is a smaller likelihood of tax rates rising any time soon.

Among various tax proposals floating around Washington is a call for a national Flat Tax System. Long touted by the likes of Steve Forbes, the Flat Tax would tax all income above a certain base amount at a single rate. Under a Flat Tax System, there would be no tax-based incentive to perform Roth Conversions.

Consideration for Roth Conversions today also involve the taxpayer’s location within a tax bracket. For instance, a couple filing jointly with taxable income up to $96,950 (in 2025) is in the 12% tax bracket. After reaching that level, the next dollar earned (“marginal dollar”) is taxed at 22%. Logically, many taxpayers try to do Conversions on enough cash to “fill up” their tax bracket.

However, it is even more complicated than it appears on paper, because once taxable income reaches $96,951, capital gains, which are not taxed for those in the lowest 2 brackets, jump to 15%. Hence, effective tax rates rise sharply.

For older taxpayers, who may be close to Medicare age, or already receiving Medicare benefits, additional costs for Medicare Premiums must be factored into the decision. IRMAA, which stands for Income Related Monthly Adjustment Amounts, are additional income taxes charged by Medicare to people earning over $250,000 (for Married Filing Jointly). There are several IRMAA brackets, each with escalating (progressive) costs, and they are not linked to Individual Tax Brackets. This requires a thorough Roth Conversion analysis to include effects of additional income on IRMAA brackets.

Further complicating Roth Conversion decisions are tax changes for beneficiaries of IRAs in a post-SECURE ACT America. Under the old rules, inheritors of Roth IRAs had to take Required Minimum Distributions, or RMDs, starting the year after death, but “stretched” over their own life expectancies. Today, most beneficiaries have only a 10-year window to drain the account.

Making a confident Roth Conversion decision involves a complex analysis of the Tax Code, as well as personal preferences and expectations. Consultation with a qualified Certified Financial Planner® is highly recommended.