Roth Conversions Under the “One Big Beautiful Bill”: Key Opportunities and Pitfalls

The recently enacted “One Big Beautiful Bill” introduces both challenges and opportunities for taxpayers considering Roth conversions. While many familiar principles still apply, several new rules have the potential to affect planning in meaningful—and costly—ways if overlooked.

Roth Conversions: Timeless Benefits, New Considerations

Converting a traditional IRA to a Roth IRA generates taxable income today in exchange for tax-free withdrawals in the future. Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) at age 73, which helps retirees control taxable income and avoid higher Medicare surcharges.

The longstanding question remains: Is it better to pay tax now while brackets are relatively low, or wait and potentially face higher taxes later? The answer is highly individualized, and the new law adds additional layers to the analysis.

Standard Deduction Adjustments and the Senior Deduction

The standard deduction has increased modestly to $15,754 for single filers and $31,500 for married couples filing jointly, with future adjustments tied to inflation. A higher deduction may help lower taxable income, making a Roth conversion more attractive in some cases.

Beginning this year and continuing through 2028, taxpayers aged 65 and older may claim an additional deduction of $6,000 (single) or $12,000 (married filing jointly, if both spouses qualify). However, this benefit phases out quickly:

• Reduced by 6% for every dollar of modified adjusted gross income above $75,000 (single) or $150,000 (joint)

• Fully eliminated once income reaches $175,000 (single) or $250,000 (joint)

Because Roth conversions increase taxable income, they can inadvertently reduce or eliminate this valuable deduction.

Qualified Business Income Deduction Made Permanent

For self-employed individuals and small business owners, the Qualified Business Income (QBI) deduction is now permanent. Eligible non-corporate taxpayers may deduct up to 20% of income from a pass-through business such as a sole proprietorship or partnership.

Key thresholds include:

• Full 20% deduction available for income up to $75,000 (single) or $150,000 (joint)

• Phase-in levels indexed for inflation beginning in 2026

• Complete loss of the deduction once taxable income exceeds $544,600

For business owners considering a Roth conversion, taxable-income interactions with QBI limits must be reviewed carefully.

Revised State and Local Tax (SALT) Deduction Limits

Starting in 2025, taxpayers who itemize will be able to deduct up to $40,000 in state and local taxes—an amount set to increase 1% annually through 2029. However, this expanded limit is also tied to income:

• The maximum deduction decreases by 30% for every dollar of taxable income between $500,000 and $600,000

• Once income exceeds $600,000, the deduction reverts to $10,000

Again, because Roth conversions increase income, they can unintentionally reduce SALT benefits.

Aligning Tax Planning With Your Estate Plan

With the new tax law in full effect, this is an ideal time to revisit how your income-tax strategy intersects with your broader estate plan. A well-timed Roth conversion can be a powerful tool, but only when coordinated with other deductions, phaseouts, and long-term goals.

Consulting with an experienced Naperville estate-planning attorney ensures that you capture opportunities without triggering unintended tax consequences—both now and in the years ahead.

Reference: Financial Advisor (Oct. 8, 2025), “Beware New Roth-Conversion Pitfalls, Keebler Warns.”