By Charles R. Kennedy, CPA, MBA,
Vice President & Director of Tax Services
Emerging from the One Big Beautiful Bill Act (OBBBA) are several tax-planning opportunities for individuals considering converting a traditional IRA to a Roth IRA. For those with significant IRA balances, the years leading up to and including 2029 may present a particularly favorable window for Roth conversions.
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One major change for tax years 2025 through 2029 is the temporary increase in the federal deduction for state and local taxes (SALT) claimed on Schedule A. Since 2017, the SALT deduction has been capped at $10,000, but under the new rules, that limit rises to $40,000 for taxpayers with income of $500,000 or less. Once income exceeds $500,000, the enhanced SALT deduction begins to phase out, returning to $10,000 for those with income of $600,000 or more.
This creates a planning opportunity: you can project your income for upcoming years and consider a Roth conversion that keeps your total income at or below $500,000, thereby preserving access to the full $40,000 SALT deduction.
Additionally, individuals with large IRA balances often hold low-basis investments that would generate substantial capital gains if sold. For charitably inclined taxpayers, donating appreciated securities can be especially effective. Taxpayers may donate up to 30% of adjusted gross income (AGI) in appreciated stock to qualified charities, receiving a charitable deduction while avoiding capital gains tax on the donated assets.
With the temporarily expanded SALT deduction, bunching charitable contributions during these years may offer even greater benefits. In prior years, many taxpayers defaulted to the standard deduction, which limited the incentive to pursue Roth conversions.
Roth Conversion Now Can Support Estate Planning
Another important consideration is that traditional IRAs are generally not ideal assets to leave to heirs. They are included in the taxable estate, and beneficiaries must withdraw the entire balance within 10 years, paying ordinary income tax on the distributions.
By contrast, although heirs must also distribute inherited Roth IRA funds within 10 years, those withdrawals are income-tax-free. For individuals who may face a taxable estate, Roth conversions can be particularly advantageous because taxes paid on conversion reduce the taxable estate and are effectively removed from the assets passed to heirs.
This strategy is most beneficial for individuals with substantial IRA assets and annual income typically below $500,000. Even partial Roth conversions completed during these favorable years can meaningfully improve long-term tax efficiency.
If you have questions about the advantages of a Roth Conversion for your tax planning and estate, consult with your financial advisor and the tax team at GT Reilly.
