Roth Conversions: Your Proactive Tax Planning Strategy Before 2026

The New Fiscal Horizon and the Fiduciary Mandate

As Fiduciary Advisors, our primary commitment is to the long-term financial well-being of our clients, seeking to minimize risk and maximize after-tax wealth.

Although the One Big Beautiful Bill Act (OBBBA) of 2025 made many of the TCJA’s individual tax provisions permanent, eliminating the automatic sunset, we are at a critical juncture. Current tax rates, while stable, remain historically competitive, but the growing national debt and potential need for government revenue mean that future rates are under threat.

For High Net Worth (HNW) individuals -especially those ages 65 to 72 with substantial savings in traditional retirement accounts – 2025 remains a strategic window of opportunity. The question now is: How can we use current rates, which may be lower than future ones, to shield their assets?

This article explores Roth Conversions as a disciplined, smart strategy to take control of your future tax burden.

The New Threat—Why 2025 Remains a Critical Year

The financial picture is fundamentally driven by the tax code. Although the OBBBA stabilized individual rates at TCJA levels, fiscal risk has been redefined:

• Threat of Higher Future Rates: The government could be forced to raise tax rates to address the projected increase in national debt (more than $3.8 trillion in deficits over the next decade, according to one estimate). If you anticipate that you’ll be at a higher tax rate in the future—whether it’s RMDs or an across-the-board tax increase—paying the tax now, at the current rate, is a potent defensive maneuver.
• Required Minimum Distributions (RMDs) and Tax Hardship: RMDs (starting at age 73) on large traditional IRA/401(k) balances can force income into retirement, potentially pushing you into higher tax rates and increasing your Medicare premiums (IRMAAs). Converting a portion of those funds to Roth in 2025 reduces the RMD base, offering greater tax flexibility going forward.

The Strategy: The main goal of a Roth Conversion is to arbitrage tax rates: pay a lower tax today to avoid a potentially much higher tax tomorrow. 2025 could be a golden window to make this “advance payment” of future tax obligations.

Understanding the Mechanics of Roth Conversion

A Roth Conversion is the transfer of assets from a tax-deferred retirement account (such as a Traditional IRA or 401(k)) to a tax-free Roth IRA.

• The Taxable Event: When you move pre-tax money into a Roth IRA, the amount converted is treated as ordinary income in the year the conversion occurs (i.e., 2025).
• Payment of Tax Bill: For HNW planning, the tax resulting from the conversion could be paid with non-retirement funds (e.g., a taxable brokerage account). Using IRA funds to pay the tax is not the most efficient strategy. Still, it could be used if you are over 59 ½ years old and avoid a 10% early withdrawal penalty.
• Tax-Free Growth: Once funds are in the Roth IRA, they grow tax-free, and all qualified withdrawals in retirement – including growth – are 100% tax-free after meeting certain conditions.

The HNW Filter – When to Convert (and When to Wait)

For sophisticated HNW clients, the decision must be accurately modeled.

Criteria for a Favorable Conversion:

Hidden Traps: When to Carefully Model (or Avoid Conversion):

• Medicare IRMAA Cliff: A large Roth Conversion in 2025 will increase your Modified Adjusted Gross Income (MAGI), which could lift Medicare Part B and Part D premiums in 2027 to a much higher surcharge level.
• Current High Income Year: If you’re having a peak income year (e.g., selling a business, exercising stock options), adding conversion income could push you to the higher tax rate, negating the benefit.
• The Five-Year Rule: Roth conversions have a five-year waiting period before the converted funds (the principal) can be withdrawn without a 10% penalty if it is less than 59 1/2.

Advanced Roth Conversion Strategies for HNW Clients

More sophisticated strategies focus on surgical execution to leverage the tax code’s efficiencies.

First strategy: The Art of Bracket Filling and Multi-Year Staggering

• Convert the exact amount in 2025 to “fill” your current tax bracket (e.g., the 32% rate) without spilling over to the next higher bracket (e.g., the 35% rate).
• For large balances (over $1 million), plan for conversion over several years (a 5-10 year strategy) to avoid a catastrophic tax bill and smooth out revenue spikes (managing the IRMAA impact).

Second strategy: Coordination with Tax Loss Collection (TLH)

• If you have net capital losses (up to $3,000 can be used against ordinary income), this loss can partially offset the ordinary income generated by the Roth Conversion, effectively reducing the cost.

Third strategy: Leverage Charitable Giving

• Donor Advisory Funds (DAFs): Financing a DAF with a large sum in 2025 generates a significant itemized deduction that can offset a portion of the conversion income, reducing the net tax liability.
• Qualified Charitable Distributions (QCDs): For customers age 70 1/2 and older, a QCD directs up to $105,000 (2024, adjusted for inflation) from your IRA to charity. This amount counts toward the RMD but is not included in AGI, creating “margin” in a lower tax bracket for a Roth Conversion.

Geographic Advantage—Planning in FL, TX, and CA

Your state residency remains a dramatic factor in the cost-benefit analysis of the Roth Conversion.

Florida (FL) and Texas (TX): The Super-Optimized Advantage

• Neither states charge state income taxes.
• Maximized Efficiency: The HNW client only pays federal income tax.
• Planning Outlook: For current residents, the low fiscal cost makes aggressive, multi-year tranche filling very attractive before any future changes in federal rates.

California (CA): The High Tax Challenge

• California maintains one of the highest state income tax rates in the country (up 13.3%).
• Higher Conversion Cost: Conversion revenue is subject to both the high Federal rate and the California high rate.

Planning Perspective: Planning for CA residents should be more surgical.

• Modeling: Hyper-accurate span filling to avoid the higher AC tax brackets.
• SALT Deductions (State and Local Taxes): The OBBBA has increased the SALT deduction limit to $40,400 for most taxpayers, but it is still capped and eliminated for higher-income taxpayers, meaning the state tax paid on conversion may not yet be fully deductible at the federal level.  increasing the total effective tax rate.

Taking Control of Your Financial Success

The fiscal changes and stability achieved by the OBBBA should not lead to inaction, but to focused action. The end-of-2025 window is a strategic, time-sensitive opportunity to optimize the tax characteristics of your retirement savings.

As your Fiduciary Advisor, we emphasize that this is a complex and deeply personal planning decision that depends on your current income, projected future tax bracket, and residency status.

The Fiduciary Call to Action:

We highly recommend scheduling a final planning session for 2025 to:

• Model Scenarios: Quantify the exact financial impact of a Roth Conversion on your AGI, IRMAA, and total lifetime tax bill.
• Coordinate with your CPA: Ensure your conversion strategy aligns with your overall tax filing strategy for the year.
• Implement Strategically: Determine the precise conversion amount to execute by December 31, 2025.

Next steps:

👉 Watch our quick VIDEO about: Smart Roth Conversion Decisions in Retirement: Knowing the 3 Times to Pause.

👉 Schedule a call with our team of CFP® advisors and fiduciaries who only charge a fee to create a customized plan.

Disclaimer: We are financial advisors, not tax professionals or lawyers. The information is for educational purposes only. You should consult with a qualified tax professional (CPA) and legal counsel before making any decisions, as Roth conversions are complex, irrevocable, and tax-consequential transactions.