Roth conversions: When the ‘juice isn't really worth the squeeze,’ according to a top-ranked advisor
If you're considering a year-end Roth conversion for 2026, there are some key things to know, experts say.
TL;DR
- Roth IRA conversions can reduce lifetime taxes and promote tax-free growth.
- Converting funds increases current-year income, potentially leading to higher immediate taxes.
- Tax law changes, including those from President Trump's "big beautiful bill," have complicated the conversion decision.
- The strategy is attractive if expecting higher tax rates in retirement and holding large pretax balances.
- Factors like Social Security timing, life expectancy, and legacy goals influence the decision.
- Increased income from conversions can affect other tax benefits, deductions (like SALT), and lead to higher Medicare premiums (IRMAA).
- Conversions can also impact ACA marketplace health insurance premium tax credits, potentially causing an 'ACA cliff'.
- Careful analysis of current and future tax implications, including potential loss of tax credits and deductions, is essential.