Roth Conversions Under the New Tax Law: 5 Critical Strategies Before the 2026 Deadline

Why Roth Conversions Matter More Right Now Than Ever

Roth conversions have become one of the most discussed planning strategies among high-net-worth investors — and for good reason. With the Tax Cuts and Jobs Act (TCJA) provisions set to sunset after December 31, 2025, the tax landscape could shift dramatically, making the next several months a critical decision window.

If you have significant assets in traditional IRAs or 401(k) plans, the question is not whether you should think about Roth conversions. The question is whether the current, historically favorable tax rates make the math compelling enough to act before the rules change.

For investors across the Treasure Coast — from Stuart and Jupiter to Vero Beach — this is a timely opportunity to evaluate how a well-structured conversion strategy could reduce lifetime tax liability. Let’s walk through what’s changing, why it matters, and how to approach the decision with clarity.

What Is a Roth Conversion and How Does It Work?

The Basic Mechanics of Roth Conversions

A Roth conversion involves moving money from a traditional IRA (or other pre-tax retirement account) into a Roth IRA. The converted amount is added to your taxable income in the year of the conversion, meaning you pay income tax on it now in exchange for tax-free growth and tax-free withdrawals in retirement.

Unlike Roth IRA contributions, there are no income limits on Roth conversions. Whether you earn $100,000 or $5 million, you can convert any amount from a traditional IRA to a Roth IRA.

Key Rules Governing Roth Conversions

• No income limits: Anyone can convert regardless of adjusted gross income
• No conversion limits: There is no cap on how much you can convert in a single year
• Taxable event: The converted amount is treated as ordinary income in the year of conversion
• 5-year rule: Each conversion has its own 5-year holding period before earnings can be withdrawn tax-free (for those under 59½)
• No undoing: Since the Tax Cuts and Jobs Act of 2017, recharacterizations (undoing a conversion) are no longer permitted

The IRS provides detailed guidance on Roth conversions in Publication 590-B and the Roth IRA resource page. Understanding these rules is foundational before moving forward with any conversion strategy.

The 2026 Tax Cliff: Why Current Rates Create a Roth Conversion Window

How the TCJA Changed Federal Tax Brackets

The Tax Cuts and Jobs Act of 2017 lowered individual income tax rates across nearly every bracket. For example, the top marginal rate dropped from 39.6% to 37%, and the 25% bracket was reduced to 22%. These lower rates apply through the end of 2025.

Unless Congress acts to extend these provisions, tax brackets are scheduled to revert to their pre-TCJA levels on January 1, 2026. That means most taxpayers would face higher marginal rates on the same income.

Roth Conversions at Today’s Rates vs. Tomorrow’s Rates

Here’s where the opportunity becomes concrete. If you convert traditional IRA assets at today’s lower rates, you lock in the tax cost at a discount compared to what those same dollars might cost you in 2026 and beyond.

Taxable Income Range (MFJ)	Current Rate (2024–2025)	Projected Rate (2026+)	Increase
$23,201 – $94,300	12%	15%	+3%
$94,301 – $201,050	22%	25%	+3%
$201,051 – $383,900	24%	28%	+4%
$383,901 – $487,450	32%	33%	+1%
$487,451 – $731,200	35%	35%	0%
Over $731,200	37%	39.6%	+2.6%

Source: Kiplinger’s 2024 tax bracket analysis. Note: 2026 projected brackets are estimates based on pre-TCJA indexed thresholds and could differ slightly based on inflation adjustments.

For a married couple converting $200,000, the difference between a 22% rate and a 25% rate equals $6,000 in additional federal tax. Scale that over multiple years of conversions, and the savings become substantial.

Will Congress Extend the Current Tax Rates?

There is active political discussion about extending all or parts of the TCJA. However, as of mid-2025, no extension has been signed into law. Planning based on current legislation — rather than speculation — is the most prudent approach.

As Fidelity’s tax planning research notes, the uncertainty itself is a reason to plan proactively rather than reactively.

5 Critical Roth Conversion Strategies for Treasure Coast Investors

Strategy 1: Bracket-Filling Roth Conversions

Rather than converting an entire IRA balance in a single year (which could push you into a much higher bracket), a bracket-filling approach converts just enough each year to “fill up” your current tax bracket without spilling into the next one.

For example, if a married couple’s taxable income is $150,000 and the 22% bracket extends to $201,050, they could convert approximately $51,050 at the 22% rate. Repeat this annually through 2025, and you could move a significant portion of pre-tax assets into a Roth at today’s favorable rates.

This is one of the most effective Roth conversions approaches because it systematically minimizes the marginal tax cost of each converted dollar.

Strategy 2: Roth Conversions During Low-Income Years

Certain life events create temporary dips in taxable income — early retirement before Social Security begins, a gap year between careers, or a year with significant deductions or losses. These windows are ideal for larger Roth conversions because the effective tax rate on converted dollars is naturally lower.

For professional athletes transitioning out of active play, or executives between positions, this can be an especially powerful opportunity. In my experience working with clients in these transitions, the tax savings from well-timed conversions can be significant.

Strategy 3: Offsetting Conversions With Charitable Giving

If you’re charitably inclined, pairing Roth conversions with charitable strategies can reduce the net tax impact. Two common approaches:

• Donor-Advised Funds (DAFs): Making a large charitable contribution in the same year as a conversion can offset part of the taxable income, effectively reducing the conversion’s tax cost
• Qualified Charitable Distributions (QCDs): For those 70½ or older, directing up to $105,000 (2024 limit) from an IRA directly to charity satisfies RMDs without adding to taxable income, which creates more room for Roth conversions

Consult a qualified tax professional for your specific situation, as the interplay between charitable deductions, AGI thresholds, and conversion amounts requires careful calculation.

Strategy 4: Roth Conversions for Estate Planning Purposes

Roth conversions are not just a retirement income strategy — they are also a powerful estate planning tool. Here’s why:

• No Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth IRAs have no RMDs during the original owner’s lifetime, allowing the account to grow tax-free for decades
• Tax-free inheritance: Beneficiaries who inherit a Roth IRA must distribute it within 10 years (under the SECURE Act), but those distributions are income-tax-free
• Reducing the taxable estate: The taxes paid on the conversion effectively reduce the size of your taxable estate, which can be beneficial for those near the federal estate tax exemption

The current federal estate tax exemption of $13.61 million per individual (2024) is also scheduled to drop by roughly half after 2025, making this a dual-planning opportunity. Our comprehensive wealth management services integrate Roth conversion analysis with broader estate planning to ensure every piece works together.

Strategy 5: Multi-Year Roth Conversion Plans for High-Net-Worth Investors

For individuals with $1 million or more in traditional IRA and 401(k) accounts, converting everything in a single year is rarely optimal. A multi-year plan — typically spanning 3 to 7 years — spreads the tax liability across multiple lower brackets and multiple tax years.

This approach requires modeling several variables:

1. Current and projected income from all sources
2. Expected tax bracket changes in 2026
3. Impact on Medicare Part B and Part D premiums (IRMAA surcharges)
4. State tax considerations (Florida residents benefit from no state income tax)
5. Social Security taxation thresholds
6. Investment growth assumptions inside the Roth

Florida’s lack of a state income tax makes it one of the most favorable states in the country for Roth conversions. Treasure Coast residents converting pre-tax IRA assets pay only federal income tax — no state tax — on the converted amount. This is a meaningful advantage compared to investors in states like New York, California, or New Jersey where state taxes could add 5–13% to the conversion cost.

The Hidden Costs and Risks of Roth Conversions

Tax Bracket Creep and IRMAA Surcharges

One of the most commonly overlooked consequences of Roth conversions is the impact on Medicare premiums. The Income-Related Monthly Adjustment Amount (IRMAA) uses your modified adjusted gross income from two years prior to determine surcharges on Medicare Part B and Part D premiums.

For 2024, IRMAA surcharges begin when modified AGI exceeds $103,000 (single) or $206,000 (married filing jointly). A large conversion could push you above these thresholds, triggering higher premiums for two calendar years. According to Morningstar’s analysis of IRMAA and Medicare costs, this can add thousands of dollars in annual premium costs.

Careful modeling can help you stay below key IRMAA thresholds or determine whether the long-term Roth benefits outweigh the short-term premium increases.

Paying Taxes From the Right Source

A critical best practice: pay the tax on a Roth conversion from non-retirement funds — a taxable brokerage account or a savings account — rather than from the converted IRA itself.

If you convert $100,000 and withhold $24,000 for taxes from the IRA, only $76,000 actually lands in the Roth. You’ve reduced the benefit of tax-free compounding. Worse, if you’re under 59½, the withholding could be treated as an early distribution subject to a 10% penalty.

Impact on Financial Aid and Other Income-Tested Benefits

For families with children approaching college, a large Roth conversion could increase your expected family contribution on the FAFSA. Similarly, certain state and local benefit programs are income-tested. These secondary effects should be part of any thorough conversion analysis.

Roth Conversions for Professional Athletes and Business Owners

Why Athletes Should Consider Roth Conversions Early in Retirement

Professional athletes often face a unique tax trajectory: very high income during a short career window, followed by a dramatic income drop after retirement from sport. The years immediately following active play — before broadcasting deals, business income, or investment returns fully materialize — can be ideal for Roth conversions.

During these lower-income years, athletes can convert deferred compensation and traditional retirement plan assets at rates far below what they paid during their peak earning years. In my experience working with clients in professional sports, this transition period is one of the most valuable planning windows available.

Business Owners: Timing Roth Conversions Around Revenue Cycles

Business owners with variable income can use low-revenue years strategically. If your business has a down year — or if you’re planning a sale and taking time off before the next venture — the temporary income dip creates Roth conversion opportunities at lower tax brackets.

Additionally, business owners who participate in SEP-IRAs or SIMPLE IRAs often accumulate large pre-tax balances that are prime candidates for systematic conversion. The key is coordinating the conversion timeline with your business planning and cash flow projections.

How to Decide If Roth Conversions Are Right for You

The Core Question: Will Your Tax Rate Be Higher Later?

Roth conversions are most beneficial when you believe your future tax rate will be equal to or higher than your current rate. Several factors support this assumption for many investors:

• Tax brackets are scheduled to increase in 2026
• The national debt may drive future tax increases regardless of political party
• Required Minimum Distributions from large traditional IRAs can push retirees into higher brackets
• Social Security income can become up to 85% taxable when combined with other income sources

When Roth Conversions May Not Make Sense

Conversions are not universally beneficial. They may be less attractive if:

• You expect your income (and tax rate) to drop significantly in retirement
• You don’t have non-retirement funds available to pay the conversion tax
• You plan to make large charitable donations from your traditional IRA via QCDs
• You are in the highest tax bracket now and expect to be in a lower bracket later
• The conversion would trigger substantial IRMAA surcharges without offsetting long-term benefit

Every situation is unique. Consult a qualified financial and tax professional to model the specific impact on your household before proceeding.

A Simple Framework for Evaluating Roth Conversions

1. Calculate your current marginal tax rate and the rate you’d pay on the conversion amount
2. Estimate your future tax rate in retirement, including the impact of RMDs and Social Security
3. Model the breakeven point — how many years of tax-free growth does it take for the Roth to outperform leaving the money in a traditional IRA?
4. Factor in secondary costs like IRMAA, financial aid impact, and state taxes
5. Stress-test the assumptions — what happens if rates don’t change? What if they go higher than projected?

For most high-net-worth investors in Florida, the breakeven period on a well-timed Roth conversion is often 7 to 12 years, meaning anyone with a time horizon beyond that may benefit substantially.

Frequently Asked Questions About Roth Conversions

Is there a limit on how much I can convert to a Roth IRA?

No. Unlike Roth IRA contributions (which have income limits), there is no limit on the amount you can convert from a traditional IRA to a Roth IRA. You can convert $10,000 or $10 million — the only constraint is your willingness and ability to pay the resulting income tax.

Do I have to pay all the taxes on a Roth conversion in one year?

Yes, the converted amount is included in your taxable income for the year the conversion occurs. However, you can spread conversions across multiple years to manage the tax impact. This multi-year approach is one of the most effective ways to execute Roth conversions without creating an unnecessarily large tax bill in any single year.

Can I undo a Roth conversion if the market drops?

No. Since the Tax Cuts and Jobs Act of 2017 took effect, recharacterizations of Roth conversions are no longer allowed. Once you convert, the decision is permanent. This makes careful upfront planning essential — you need to be confident in the conversion amount before executing it.

How do Roth conversions affect my Medicare premiums?

A Roth conversion increases your modified adjusted gross income, which can trigger IRMAA surcharges on Medicare Part B and Part D premiums two years later. For 2024, surcharges begin at $103,000 (single) or $206,000 (married filing jointly). Working with an advisor to model IRMAA thresholds is an important part of any Roth conversion strategy.

Are Roth conversions worth it if tax rates don’t go up in 2026?

Potentially, yes. Even if current rates are extended, Roth conversions can still be valuable for reducing future RMDs, creating tax-free income in retirement, and passing tax-free assets to heirs. The 2026 sunset adds urgency, but the fundamental benefits of Roth conversions exist independently of the current legislative timeline.

The Bottom Line: Don’t Let the 2025 Window Close Without a Plan

The convergence of historically low tax rates, a defined legislative deadline, and Florida’s zero state income tax creates what may be one of the most favorable environments for Roth conversions we’ve seen in decades. Whether you’re a retiree managing RMDs, a business owner navigating variable income, or a professional athlete planning for life after sport, the math deserves your attention now — not in December 2025 when options narrow.

Roth conversions are not a one-size-fits-all strategy. They require modeling, tax coordination, and ongoing monitoring. But for the right investor, in the right circumstances, they can meaningfully reduce lifetime taxes and create lasting financial flexibility for you and your family.

If you’d like to explore how Roth conversions fit into your broader financial picture, we invite you to schedule a discovery conversation with our team. We help Treasure Coast investors build tax-efficient, long-term wealth plans grounded in fiduciary guidance.

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This content is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Advisory services offered through Davies Wealth Management, a Registered Investment Adviser. Please consult a qualified financial, tax, or legal professional regarding your specific situation.