Roth Conversions Before Year-End: What to Know, Including the New Senior Deduction
If you have money in a traditional IRA, you may have heard about Roth conversions. With year-end approaching, and a newer tax rule for people over 65, this is a good time to understand how they work.
What a Roth conversion is
A conversion moves money from a traditional IRA to a Roth IRA. You pay income tax on the amount converted in the year you convert it. In exchange, qualified withdrawals from the Roth later are tax-free, and the Roth IRA owner is not required to take required minimum distributions.
Why people consider it
Tax diversification. Having both taxable and tax-free money gives you more control over your taxable income in retirement.
Lower-income years. If your income is lower than usual this year, the tax on a conversion may be lower than it would be later.
Future RMDs. Moving money to a Roth can reduce the size of the traditional IRA that future RMDs are based on.
Legacy planning. Roth assets can be a tax-friendly asset to leave to heirs.
The new senior deduction
Under the 2025 tax law, taxpayers 65 and older can claim an additional deduction for tax years 2025 through 2028. The deduction phases out as income rises, starting at roughly $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers.
This matters because a conversion counts as income. A conversion can push income into the phase-out range, which reduces the deduction and raises the real cost of the conversion. Done carefully, the amount converted can be set to stay below those thresholds.
Other things a conversion can affect
Medicare premiums. Higher income can raise Medicare Part B and Part D premiums, based on income from two years earlier.
Taxes on Social Security. More income can mean more of your benefit is taxable.
Your tax bracket. A large conversion can move you into a higher bracket, so some people spread conversions over several years.
Timing
A conversion has to be completed by December 31 to count for this tax year.
Some custodians stop processing current-year conversions in the last weeks of December, so November or early December is safer.
Conversions can no longer be undone, so the amount should be decided carefully.
It is generally best to pay the tax from money outside the IRA, since using IRA money to pay it reduces the benefit.
Questions to ask before converting
What would my tax bracket be with and without the conversion?
Would it affect my Medicare premiums or the senior deduction?
Do I have cash outside the IRA to pay the tax?
Does this fit my plan for the next 10 to 20 years?
A conversion isn’t right for everyone, and the answer depends on your whole picture. If you’d like to talk it through, reach out and we can run the numbers together, ideally with your CPA.
This is educational information, not tax or legal advice. Please consult your tax professional about your own situation.
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