Why 2025 Is a Critical Year for Roth IRA Conversions
When it comes to retirement planning, timing is everything. And for many retirees and pre-retirees, 2025 may be the most important year yet to consider a Roth IRA conversion.
Here’s why:
- Tax rates are set to change. The Tax Cuts and Jobs Act (TCJA) of 2017 lowered federal tax brackets through 2025. Unless extended again, higher tax rates will return in 2026.
- The new “One Big Beautiful Bill” (OBBBA) extended many provisions, but there is still uncertainty around future rates and thresholds.
- Markets and inflation remain volatile, which makes locking in tax-free growth now a powerful long-term strategy.
👉 In short: If you’ve ever considered a Roth conversion, 2025 may be your window of opportunity.
The Benefits of Converting to a Roth IRA in 2025
1. Lock In Today’s Lower Tax Rates
Converting now allows you to pay taxes at today’s historically low brackets, potentially avoiding higher rates in retirement.
2. Reduce or Eliminate Future RMDs
Unlike traditional IRAs, Roth IRAs don’t require Required Minimum Distributions (RMDs). This means more control over your retirement income and lower taxable income later.
3. Strengthen Your Estate & Legacy Plan
Roth IRAs pass to heirs income-tax-free. For families concerned about leaving behind a tax burden, this is a powerful legacy tool.
4. Tax Diversification
A mix of taxable, tax-deferred, and tax-free accounts creates flexibility to manage your tax bill year-to-year in retirement.
Smart Roth Conversion Strategies for 2025
Consider Partial Conversions
You don’t have to convert your entire IRA at once. Many retirees choose multi-year partial conversions to stay in lower tax brackets.
Use Outside Funds to Pay the Taxes
Covering the tax bill with money outside your IRA is often best. That way, you maximize the dollars that can grow tax-free inside your Roth.
Watch for Medicare IRMAA Thresholds
Large conversions can increase your Medicare premiums due to IRMAA (Income-Related Monthly Adjustment Amount). Planning the amount carefully can help avoid crossing into a higher bracket.
Coordinate With Other Income
If you plan to sell a home, start Social Security, or take large withdrawals, coordinate the timing with your Roth conversion to minimize your total tax exposure.
Tools to Plan Your Roth Conversion
- Roth IRA Conversion Calculators (Schwab, Fidelity, Voya, and others provide free online tools).
- Tax Projection Software: Your CPA or advisor can run projections based on your expected retirement income.
- Professional Guidance: A financial planner can help balance your tax savings, IRMAA exposure, and retirement cash flow needs.
Common Mistakes to Avoid
- Waiting too long. If you put off a conversion until 2026 or later, you may pay higher taxes on the same dollars.
- Converting too much at once. Overshooting into the next tax bracket or triggering IRMAA surcharges can erase the benefits.
- Skipping professional advice. Taxes, Medicare, and retirement income planning are interconnected. A coordinated plan makes all the difference.
Final Thoughts
Every retiree’s situation is unique. For some, a Roth conversion in 2025 could mean tens of thousands in lifetime tax savings. For others, spreading conversions across multiple years may work better.
As always, the key is to plan ahead. If you’re wondering whether a Roth IRA conversion in 2025 makes sense for you, now is the time to run the numbers.
If you’d like help analyzing whether a Roth conversion is right for you, let’s schedule a strategy session. Together, we’ll look at your income, taxes, Social Security, and long-term goals to create a personalized plan.
Thomas Clark is a Series 65 licensed investment advisor and experienced trader. He specializes in investing, retirement planning, and market analysis, helping individuals build wealth and make informed financial decisions.