The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, changed the context for retirement tax planning. It made the Tax Cuts and Jobs Act’s 10% through 37% federal tax brackets permanent for 2026 and beyond, removing the former urgency to convert assets before rates automatically increased.
That does not make tax planning less important. It makes the analysis more personal.
A Roth conversion is no longer primarily a race against a legislative sunset. It is a decision about your lifetime tax path, the timing of required minimum distributions (RMDs), Medicare premiums, charitable giving, estate objectives, and the tax consequences your surviving spouse or heirs may face.
For many affluent households, the most expensive mistake is waiting until RMDs begin. By then, mandatory distributions may eliminate the lower-income years that could have provided the most efficient conversion opportunity.
The Tax-Bracket Arbitrage Window
Under SECURE 2.0, RMDs generally begin at age 73 for individuals born from 1951 through 1959 and at age 75 for individuals born in 1960 or later. The first RMD may be delayed until April 1 of the following year, but delaying it can result in two taxable RMDs during that subsequent year. The IRS RMD guidance provides the applicable rules.
This creates a potentially valuable period between retirement and the beginning of RMDs:
- Employment income has declined or ended.
- Portfolio withdrawals can be managed.
- Social Security may not yet have started.
- RMDs are not yet forcing additional taxable income.
- The household may still be eligible for favorable marginal tax brackets.
- A Roth IRA can continue growing without lifetime RMDs for the original owner.
That period is the tax-bracket arbitrage window. You may voluntarily recognize income at a controlled marginal rate today rather than allow future RMDs to determine how much income is recognized later.
A Roth conversion during this window can move assets from a traditional IRA into a Roth IRA, where the converted amount is generally included in current ordinary income. The objective is not to minimize taxes in one isolated year. The objective is to improve the household’s cumulative after-tax outcome over decades.
Why Waiting for RMDs Can Be Costly
Traditional IRA RMDs are calculated using the prior year-end account balance and an applicable life-expectancy factor. A large pretax portfolio can therefore produce substantial taxable income even when you do not need the cash.
RMDs can create several compounding effects:
- Higher marginal tax rates. RMD income stacks on top of Social Security, pension income, interest, dividends, and realized capital gains.
- Higher taxation of Social Security benefits. Additional income can cause a larger portion of Social Security benefits to become taxable.
- Medicare IRMAA surcharges. Medicare Part B and Part D income-related adjustments are generally based on modified adjusted gross income from two years earlier.
- Reduced flexibility. Once RMDs begin, the required distribution must be taken before any additional amount can be converted.
- Survivor tax pressure. After the first spouse dies, the surviving spouse may move from married-filing-jointly brackets to single-filer brackets while continuing to hold substantial retirement assets.
Waiting does not avoid taxation. It often transfers control of the timing and amount of taxable income from the household to the RMD rules.
How to Model a Roth Conversion
To model a Roth conversion, compare the marginal tax rate paid today with the likely marginal rate applied to the same dollars in future RMD years. This requires more than comparing the current federal bracket with a projected future bracket.
A complete analysis should include:
- Current taxable income and filing status
- Expected retirement income before RMDs
- Traditional IRA and employer-plan balances
- Projected investment growth
- Future RMD amounts
- Social Security and pension income
- State income taxes
- Medicare IRMAA thresholds
- Charitable giving intentions
- Potential survivor filing status
- Estate and beneficiary objectives
The 2026 federal tax structure remains 10% through 37% under the OBBBA. The IRS 2026 inflation-adjustment guidance provides the applicable thresholds.
The practical question is not, “Will tax rates rise?” The more useful question is, “At what rate will these dollars likely be taxed if they remain in the traditional IRA?”
A household may choose to fill a particular marginal bracket each year rather than execute one large transaction. For example, a partial conversion may be sized to remain within the 24% bracket, subject to the effects on IRMAA, the senior deduction, state taxes, and other income-tested provisions.
Each Roth conversion should be evaluated as part of a multi-year schedule rather than as a one-time transaction.
The IRMAA Two-Year Lookback Trap
A conversion completed today can affect Medicare premiums two years from now.
For example, a conversion completed in 2026 will generally be reflected in the tax return used to determine 2028 IRMAA. A large conversion can therefore create increased Medicare Part B and Part D premiums after the conversion year, even if household income has since declined.
The Social Security Administration’s IRMAA guidance explains how modified adjusted gross income affects Medicare premiums. If income falls because of a qualifying life-changing event, Form SSA-44 may allow a beneficiary to request a more current income determination. A voluntary Roth conversion, however, is not itself a qualifying life-changing event.
The IRMAA analysis should consider:
- Whether the conversion crosses an IRMAA tier
- The number of years higher premiums may apply
- Whether both spouses are affected
- Whether the conversion also reduces other deductions or credits
- Whether future RMDs would have caused the same or greater surcharge
IRMAA is not a reason to reject every conversion. It is a reason to model the full marginal cost rather than rely on the federal tax rate alone.
Technical Issues That Can Change the Result
Before executing a Roth conversion, confirm the account structure and tax basis.
The pro-rata rule
The IRS generally treats all traditional, SEP, and SIMPLE IRAs as one combined pool when determining the taxable portion of a distribution or conversion. You cannot generally identify only the after-tax dollars in one IRA and convert those dollars tax-free while leaving pretax dollars in another IRA.
The IRS instructions for Form 8606 explain how taxpayers report nondeductible contributions and calculate the taxable and nontaxable portions of IRA distributions and conversions.
The pro-rata calculation can be particularly important for individuals who have made nondeductible IRA contributions or are considering a backdoor Roth strategy. Employer-plan balances, such as assets in a 401(k), generally are not included in the IRA pro-rata pool, subject to the specific circumstances and plan rules.
Pay conversion taxes with outside cash
Using retirement assets to pay the tax reduces the amount that ultimately reaches the Roth IRA. It can also create additional tax complications if the account owner is under age 59½ or if withholding is insufficient.
When appropriate, paying the conversion tax with nonretirement cash preserves more assets inside the Roth IRA. Estimated tax payments or adjusted withholding should be coordinated with a tax professional to avoid underpayment penalties.
Use partial conversions over multiple years
A series of smaller conversions can provide better control than a single large transaction. It may allow the household to:
- Manage marginal tax brackets
- Reduce IRMAA exposure
- Preserve more of the temporary senior deduction
- Coordinate with charitable contributions
- Adjust for changing portfolio values
- Respond to changes in employment, markets, or spending
The correct conversion amount is not necessarily the largest amount that can be completed. It is the amount that improves the overall plan after considering taxes, liquidity, Medicare, and estate objectives.
OBBBA Provisions That Affect the Analysis
The OBBBA creates additional planning variables even though it did not eliminate Roth conversions.
The temporary senior deduction provides up to $6,000 per eligible individual age 65 or older for tax years 2025 through 2028, subject to income-based phaseouts. A conversion that increases modified adjusted gross income may reduce or eliminate that benefit.
The SALT deduction cap was raised through 2029, with income-based limitations that can affect higher-income households. A conversion may increase income enough to reduce the value of the deduction.
The federal estate tax exemption is $15 million per person for 2026 and is indexed afterward. That larger exemption reduces the need to execute conversions solely to reduce the size of a potentially taxable estate. It does not eliminate the income-tax consequences of leaving a large traditional IRA to heirs.
A Roth IRA may provide heirs with more favorable tax diversification than a traditional IRA, but beneficiary distribution rules still apply. Estate planning should consider account titling, beneficiary designations, trust structures, portability, charitable intentions, and the potential tax profile of each beneficiary.
Coordinate Conversions With the Whole Financial Plan
A Roth conversion should not be analyzed as a standalone tax transaction. It should fit within the household’s broader financial plan.
For example, future charitable giving may be better funded through qualified charitable distributions (QCDs) from a traditional IRA after age 70½. QCDs can satisfy all or part of an RMD while generally remaining excluded from taxable income, subject to statutory limits and eligibility requirements. The IRS Publication 590-B provides guidance on IRA distributions, RMDs, Roth IRAs, and QCDs.
That does not mean a household should avoid conversions simply because it expects to make charitable gifts. Instead, the plan can reserve some traditional IRA assets for future QCDs while converting other assets during lower-income years.
The analysis should also account for:
- Cash-flow needs before and after RMD age
- Portfolio location and asset allocation
- Tax diversification across taxable, traditional, and Roth accounts
- Long-term care and risk-management needs
- Estate liquidity
- The surviving spouse’s future filing status
- The tax characteristics of intended beneficiaries
InSight Financial Planners applies this type of coordinated analysis through the InSight-Full® planning process, integrating investments, taxes, cash flow, retirement, estate planning, and risk management around the client’s objectives.
The Smart Money Decision
The OBBBA removed the need to convert assets merely because a prior law was scheduled to expire. It did not remove the value of disciplined tax planning.
The most effective strategy for many households is to evaluate the years before RMDs begin, when income may be lower and taxable distributions remain optional. A Roth conversion can then be sized to manage brackets, IRMAA, deductions, charitable objectives, and estate outcomes.
Waiting until RMDs begin often means accepting higher taxable income with fewer planning choices. Acting earlier does not guarantee a lower lifetime tax bill, but it creates more control over when and how taxes are paid.
That control is the central benefit: greater flexibility, improved tax diversification, and a more efficient retirement plan.
This article is for educational purposes only and does not constitute tax, legal, or investment advice. Roth conversion decisions depend on individual facts, including tax basis, filing status, income, state law, Medicare status, account ownership, and estate objectives. Consult qualified tax and legal professionals before implementing a strategy. InSight Financial Planners is a Registered Investment Advisor. Advisory services are provided through a formal financial plan and in accordance with applicable fiduciary obligations.
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