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Craig Lundquist, MBA, ChFC®, CRPC®
VP of Wealth Management
651-773-2757
Kristin Becker
Senior Administrative Assistant
651-773-2821
Ideal Wealth Advisors
Located at Ideal Credit Union
8499 Tamarack Road
Woodbury, MN 55125
CRPC conferred by College for Financial Planning
March/April 2026
Roth Conversions May Be Trickier Under OBBBA
The One Big Beautiful Bill of 2025 (OBBBA) appears to make Roth conversions more attractive because of temporarily lowered federal tax brackets, expanded standard deductions, and additional deductions for seniors. However, planning for Roth conversions under OBBBA isn't simply a matter of transferring funds. You need to weigh the impact of the conversion on other tax considerations.
Phaseouts and Deductions
Large conversions can increase your income to levels where you lose valuable deductions, such as the State SALT deduction and the Qualified Business Income deduction, subjecting you to higher effective tax rates.Surcharges
Roth conversions can raise your Modified Adjusted Gross Income (MAGI), potentially triggering surcharges for Medicare Income- Related Monthly Adjustment Amount (IRMAA) and the Net Investment Income Tax (NIIT), which may add thousands of dollars in unexpected costs.Higher Combined Tax Rate
In high-tax states, a substantial Roth conversion can push combined effective tax rates above 45%–50% because state taxes are only partially deductible under the SALT cap.Spreading It Out
The tax benefits of a Roth conversion depend heavily on when you convert and how much you convert in a given year. By converting smaller amounts over several years, you can minimize the tax impact. Instead of jumping into a higher tax bracket all at once, you'll be able to keep your taxable income relatively stable. You could save money in taxes and manage your overall tax situation more efficiently.A multi-year conversion strategy gives you flexibility. By stretching your conversions over several years, you can assess your financial situation annually and adjust your strategy accordingly. If your income is exceptionally high one year, you can opt to convert less that year and more the following year when your income might be lower. Not only does this approach help manage your tax liability more effectively, but it also provides greater control over your future finances.
While Roth conversions under OBBBA offer significant opportunities for tax-free growth, the decision is no longer straightforward. The interplay of federal tax brackets, deduction phaseouts, Medicare surcharges, and state taxation creates a complex calculation. Consult your financial advisor to determine how a Roth conversion might impact your tax situation and to explore the best conversion strategy for your specific circumstances.
*Converting a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must occur after age 59 or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Roth IRA distributions may be subject to state taxes.
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