Advisors Reassess Roth IRA Conversions After 2025 Tax Law

President Trump signed the One Big Beautiful Bill Act on July 4, 2025, permanently extending 2017 tax rates and expanding deductions. The law raised the standard deduction, added an enhanced senior deduction, temporarily increased the state and local tax (SALT) deduction for 2026–2029 and includes a 2026 deduction of up to $1,000 per person for cash charitable donations. Those changes affect whether taxpayers itemize and how much taxable income they can absorb in a conversion year.

Financial advisors say the law altered when and for whom converting a traditional IRA to a Roth IRA makes sense. A Roth conversion requires paying income tax on the converted amount now in exchange for tax-free growth and tax-free distributions in the future.

Kelli Smith, a financial planner, identified three common reasons clients pursue conversions: to reduce future required minimum distributions, to create tax-free savings for long-term care or other needs, and to leave tax-free assets to heirs. Required minimum distributions begin between age 70½ and 75, depending on birth year, and larger mandatory withdrawals can push retirees into higher tax brackets. Roth conversions do not satisfy RMDs.

Alex Velazquez, senior vice president at Carnegie Investment Counsel, called conversion planning “a year-by-year thing” and pointed to specific situations that can make a conversion more attractive. Examples include using a large carryforward loss from a business sale, pairing a large charitable gift with a conversion to lower taxable income for a year, or converting during lower-income years that sometimes occur after retirement and before pensions or Social Security begin. He noted that converted assets may reduce taxes over time but can produce higher taxes in the initial years after conversion.

Bradford Houchins of River Wealth Advisors noted that the temporary increase in the SALT deduction can make conversions more beneficial for taxpayers who now itemize instead of taking the standard deduction. Some clients who previously took the standard deduction can now itemize and therefore have more flexibility to absorb conversion income, often combined with charitable giving strategies.

Estate planning considerations are part of the calculation. Heirs generally inherit Roth assets without paying income tax on distributions, which can lower the tax burden for beneficiaries who are in high-earning years. Houchins recommended advisors learn about heirs’ likely tax situations when modeling conversion outcomes.

Advisors warned that conversions are not appropriate for every saver. James Mahaney, founder of Mavericus Retirement Services, cautioned that converting without a clear long-term plan can create short-term tax pain without lifetime benefit and encouraged modeling how a conversion will compound over a client’s remaining years.

Advisors recommend coordinating with clients’ tax professionals to run scenarios that account for the law’s deduction changes, carryover losses, charitable plans and the timing of income. They say the 2025 law has changed the calculations advisers use when deciding whether a Roth conversion will lower taxes for a client or for the client’s heirs.