OBBB Changes Calculus on Roth Conversions

The OBBB did not make any significant changes to the rules governing retirement plans. However, several changes indirectly impact a taxpayer's calculus when determining whether to execute a Roth conversion and how much to convert. Amounts converted to a Roth are treated as taxable income, of course--and the 2017 historically-low income tax rates have now been made permanent, making Roth conversions cheaper for many. Key provisions in the OBBB are directly tied to a taxpayer's adjusted gross income (for example, the new $6,000 senior deduction, the deduction for tip income and the deduction for overtime pay all begin to phase out once the taxpayer's income reaches $150,0000 ($300,000 for couples). The SALT cap has also received a significant boost, but that boost is temporary (the cap increases from $10,000 to $40,000, but only for 2025-2029). Because the increase also begins to phase out once the taxpayer's income reaches $500,000, taxpayers in high tax states should be advised on timing issues when evaluating whether--and how much--to convert. For more information on the rules governing Roth conversions, visit Tax Facts Online. Read More: Link to Q3663. Note: Q is updated.