There’s a time-sensitive tax planning opportunity that most Americans are missing. The Tax Cuts and Jobs Act of 2017 temporarily lowered federal income tax brackets — and those lower rates are scheduled to sunset on December 31, 2025. Starting in 2026, tax brackets are reverting to higher pre-TCJA levels, which means converting traditional retirement accounts to Roth accounts will cost more in taxes going forward.
If you’ve been considering a Roth conversion, the math strongly favors doing it now — while we’re still in what may be the lowest tax rate environment of our lifetimes.
The Tax Bracket Shift in Numbers
Under the TCJA, the 22% bracket applies to income between $47,151 and $100,525 for single filers (2025). If the TCJA sunsets as scheduled, that bracket reverts to 25% — and the thresholds shift. According to the Tax Foundation’s 2026 projections, a married couple filing jointly with $200,000 in taxable income would pay approximately $4,800 more in federal income tax under the reverted brackets.
For Roth conversions, this means every dollar you convert in 2025 is taxed at rates 3-4 percentage points lower than the same conversion in 2026. On a $100,000 conversion, that’s $3,000 to $4,000 in additional tax if you wait. On a $500,000 conversion executed over several years, the total difference can exceed $15,000-$20,000.
Who Benefits Most From Converting Now
Retirees aged 60-72 with large traditional IRA/401(k) balances. This is the sweet spot. You may be in a lower-income year (between retirement and Social Security/RMD start dates), creating room to convert at low marginal rates. Once Required Minimum Distributions begin at age 73, you’ll be forced to take taxable distributions whether you need the income or not.
Workers expect higher future income. If you’re mid-career and anticipate promotions, business growth, or inheritance that will push you into higher brackets, converting now locks in today’s lower rates. The tax savings compound over decades of tax-free Roth growth.
Anyone concerned about future tax rate increases. Regardless of what happens with the TCJA, the national debt trajectory ($34+ trillion) creates pressure for future tax increases. Converting to Roth removes your retirement savings from the reach of future tax rate changes — whatever your political prediction, Roth provides certainty.
The Pro-Rata Rule Trap
Before executing a conversion, understand the pro-rata rule — the most common surprise that derails Roth conversion strategies.
If you have both pre-tax and after-tax (non-deductible) contributions in your traditional IRA, you can’t cherry-pick which dollars to convert. The IRS treats all your traditional IRA assets as a single pool and applies the pro-rata rule: the taxable portion of any conversion equals the ratio of pre-tax assets to total IRA assets.
Example: You have $180,000 in pre-tax IRA assets and $20,000 in non-deductible contributions (total $200,000). If you convert $50,000, the taxable portion is 90% ($180,000/$200,000), meaning $45,000 is taxable — not just the $20,000 in after-tax contributions.
The workaround: roll your pre-tax IRA assets into an employer 401(k) plan (if it accepts rollovers), leaving only the after-tax contributions in the IRA. Then convert the remaining after-tax balance to Roth with minimal tax impact. Understanding the full range of retirement account structures makes this strategy possible.
The Multi-Year Conversion Strategy
Converting a large traditional IRA balance in a single year can push you into the highest tax bracket, triggering Medicare IRMAA surcharges and potentially increasing taxes on Social Security benefits. The smarter approach is a multi-year conversion plan that fills up lower brackets each year.
For a married couple with $80,000 in other taxable income, the 2025 22% bracket extends to $190,750. That creates approximately $110,750 of “room” for Roth conversions at the 22% rate. Converting exactly that amount — and no more — keeps you from spilling into the 24% bracket.
Repeat this annually, adjusting for changes in income and bracket thresholds. A disciplined multi-year approach can convert $400,000-$500,000 from traditional to Roth over 4-5 years at the lowest possible tax rates.
The Five-Year Rule You Can’t Ignore
Roth conversions are subject to a five-year holding period for penalty-free withdrawal of the converted amount (not the earnings — earnings follow separate rules). Each conversion starts its own five-year clock.
This means a conversion done in 2025 can be withdrawn penalty-free starting in 2030. For retirees under 59½, this timeline matters for spending planning. For retirees over 59½, the five-year rule on conversions is generally irrelevant because all Roth withdrawals — contributions, conversions, and earnings — are penalty-free after that age as long as the account has existed for at least five years.
IRMAA: The Hidden Cost of Large Conversions
Medicare Part B and Part D premiums are means-tested through the Income-Related Monthly Adjustment Amount (IRMAA). If a large Roth conversion pushes your modified adjusted gross income above certain thresholds, you’ll pay higher Medicare premiums two years later.
For 2026, IRMAA surcharges begin at MAGI above $103,000 for individuals and $206,000 for married couples. The surcharges can add $900-$5,700 per person annually to Medicare premiums. A $150,000 Roth conversion that pushes you above these thresholds could cost an additional $1,800-$11,400 in Medicare premiums — potentially offsetting a significant portion of the tax bracket savings.
Factor IRMAA into your conversion calculations. In many cases, staying just below the IRMAA threshold is optimal, even if it means a smaller annual conversion. Retirement plan optimization requires looking at the complete tax picture, not just the income tax bracket.
The Timeline for Action
If you’re considering a Roth conversion for 2025 (the last year of guaranteed lower TCJA rates), the conversion must be completed by December 31, 2025. However, the planning should start now: you need to project your 2025 income accurately, determine the optimal conversion amount, and ensure you have funds outside the IRA to pay the tax bill (paying conversion taxes from the IRA itself defeats much of the benefit).
For 2026 conversions under the reverted brackets, the same principles apply — just at higher tax costs. The window isn’t closed in 2026; it’s just more expensive. If Congress extends the TCJA rates (possible but not guaranteed), the urgency decreases but doesn’t disappear.
Consult a tax professional before executing large conversions. The interaction between conversion income, Social Security taxation, IRMAA thresholds, state income taxes, and the pro-rata rule creates complexity that generic advice can’t fully address. The cost of professional guidance ($500-$2,000) is trivial compared to the potential five- and six-figure tax savings a well-executed conversion strategy can deliver.
