Written By Erika Ferris

September 1, 2025

You’ve probably heard of the One Big Beautiful Bill Act, or something close to it. We’re calling it OBBBA, and while it may not directly rewrite retirement account rules, it could have indirect effects that impact your Roth conversion strategy. From new senior deductions to expanded SALT caps, understanding how OBBBA impacts your taxable income, and therefore your conversion opportunities, is key to optimizing your long-term plan.

Roth Conversion Basics

Let’s start with a quick refresher. Roth conversions, aka backdoor Roths, aren’t new. They’ve been available since 1998 but became more widely used after 2010 when the $100,000 MAGI limit was eliminated. This allowed taxpayers, regardless of income, to convert Traditional IRA balances to Roth IRAs and pay the taxes up front.²

Gone are the days of recharacterization, or the ability to undo a conversion if it wasn’t best from a tax standpoint. Since 2018, Roth conversions have been irrevocable, making careful tax planning more important than ever.

Conversions are reported as taxable income on both federal and state levels. They’re also included in your MAGI, which can impact not just your tax bracket, but your eligibility for deductions and even your Medicare premiums under IRMAA.

You not only need to analyze what tax bracket a Roth conversion may fill, or push you into, but also how it could disqualify you from valuable deductions – a risk that’s especially relevant under OBBBA.

OBBBA Senior Deduction Impact on Roth Conversions

The new senior deduction under OBBBA offers an additional deduction of up to $6,000 for individuals or $12,000 for couples age 65 or older. This deduction begins to phase out for single filers with MAGI over $75,000 and is fully phased out above $175,000. For joint filers, the phaseout begins at $150,000 and ends at $250,000.

Because this deduction reduces taxable income, it can create more room within your tax bracket for Roth conversions, particularly if you’re in the lower to mid-income range. That’s not to say higher-income earners age 65 and older should not consider Roth conversions. They may already be ineligible for the deduction but could still benefit from converting for reasons like future RMDs or legacy planning.

If you’re under 65, strategic Roth conversions today could help you keep your MAGI low enough later to qualify for the senior deduction when you become eligible.

It’s Just About Income Taxes, Right?

A Roth conversion doesn’t just impact your taxable income and which bracket you fall into. Conversions are included in your MAGI, which can affect your Medicare IRMAA premiums and Social Security taxation, not to mention possibly making you ineligible for certain deductions, such as the new senior deduction.

Here’s the catch: your MAGI determines if you are eligible for the deduction, and the deduction is what lowers your taxable income. Focusing only on your immediate tax bracket could unintentionally raise your long-term Medicare costs or disqualify you from deductions.

SALT Deduction and Roth Conversions

One of OBBBA’s more overlooked but significant changes is the temporary expansion of the SALT deduction cap from $10,000 to $40,000 for both individuals and couples, through 2029. Once your MAGI exceeds $500,000, this benefit begins to phase out and above $600,000 it reverts to $10,000.

Here’s why that matters for Roth conversions. Suppose a taxpayer’s MAGI is $500,000 prior to a conversion. The SALT deduction on taxable income would be $40,000. If they convert $100,000, their MAGI increases to $600,000, causing the SALT deduction to drop to just $10,000. So, while their gross income increased by $100,000, their taxable income increased by $130,000 due to the lost deduction. At a 35% marginal rate, the effective tax rate becomes 45.5%, making the conversion potentially counterproductive without deeper planning.

This is a simplified example. A full tax analysis may show that the long-term benefits of a conversion still outweigh the short-term cost, especially if the conversion is to manage future RMDs, reduce future tax volatility, and pass wealth tax-free. It’s a highly individual decision and should be evaluated ongoing.

How Do You Know What to Do?

There is no magical calculator or cookie-cutter answer if a Roth conversion is right, when it should be done, and how much should be converted. Just remember, a Roth conversion cannot be undone, even if it’s in the same tax year, so proceed with diligence. The complexity makes a financial plan and tax analysis before converting that much more important to your financial roadmap. Reach out to your trusted financial advisor for guidance navigating these new regulations and developing a tax-smart strategy.

¹ Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. (22-LPL)

² Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. (157-LPL)

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