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The Continuing Case for Roth IRA Conversions

Writer's picture: Steven J. Rosenthal, CPA, CFP, JDSteven J. Rosenthal, CPA, CFP, JD


The case for making Roth IRA conversions has been bolstered and extended by the election of a new Trump administration. Individuals were expecting tax rate hikes in 2026 at the expiration of the Tax Cuts and Jobs Act, but there is now a much better chance that existing inflation-adjusted tax rates will remain in place for a longer time. This has provided an expanded opportunity to convert taxable or tax-deferred assets to tax-free assets while rates are relatively low.  For example, in 2025, the 24% marginal tax rate for couples filing married jointly runs from $206,700 to $394,600 in taxable income.


The conversion strategy involves moving assets from a traditional IRA or rollover IRA account to a Roth account and paying tax on the built-in gains in the year of conversion. The benefit of paying taxes on the conversion is that the earnings in the Roth account accumulate tax-free and are not subject to required minimum distributions (RMDs). This gives the assets time to grow beyond what can be provided in a taxable or tax-deferred account. Although tax rates remain relatively low in 2025 and possibly for the next few years, tax rates will inevitably need to be raised due to the continuing demands on federal government spending and the need to reduce budget deficits in the future.


The computation of the taxable gain on conversions is shown on IRS Form 8606. It makes sense to do pro forma calculations using this form to ensure that the marginal tax rate of the conversion does not drift higher than a taxpayer is willing to pay at the time of conversion.


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