New 2025 Opportunity for Tax-Free Roth Conversions
Beginning in 2025, the new One Big Beautiful Bill Act (OBBBA) introduced a special deduction that allows seniors to complete tax-free Roth conversions.
If you’re age 65 or older, married filing jointly, and your income is below the IRS limit, you may opt to convert up to $12,000 per year from a Traditional IRA to a Roth IRA with no tax consequences. This new opportunity is available from 2025 through 2028.
Why This Matters
Typically, when you convert a Traditional IRA to a Roth IRA, the amount converted is added to your taxable income.
BUT under the new rule: You may receive a special senior deduction equal to the amount you convert (up to $12,000). If your income stays below the threshold, that deduction can potentially fully offset the conversion income, resulting in zero added tax.
Who Qualifies?
To receive the full $12,000 deduction:
- You must be 65 or older
- You must file Married Filing Jointly
- Your Modified Adjusted Gross Income (MAGI) must be below $150,000
- The benefit phases out between $150,000–$250,00
- Single retirees qualify for a $6,000 conversion deduction
How It Works — Simple Example
Let’s say you and your spouse (both 65+) have the following income:
- Social Security: $35,000
- Pension income: $25,000,
- Dividends & interest: $15,000
- RMDs: $20,000
Your total MAGI = $95,000, under the $150,000 limit.
If you convert $12,000 from your Traditional IRA to a Roth IRA:
+ $12,000 Roth conversion
– $12,000 senior conversion deduction
= $0 added taxable income
You pay no tax on that $12,000 conversion.
Why You May Want to Use This Strategy
- Potentially grow more of your retirement money tax-free
- Reduce future Required Minimum Distributions (RMDs)
- Lower future Medicare Income-Related Adjustment Amount (IRMAA) surcharges
- Create tax-free inherited Roth assets for your beneficiaries
- Take advantage of the rule before it expires in 2028
Next Steps
- Estimate your MAGI for 2025–2028
- Determine how much you can convert tax-free
- Coordinate RMDs, Social Security, and investments to maximize the benefit
- File the correct IRS forms (including Form 8606)
This is a unique four-year window to shift money into tax-free growth at little to no tax cost.
Disclosures:
This is for educational and informational purposes only and does not constitute tax or legal advice. The information provided here is general in nature, based on publicly available interpretations of the One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025), and may not be accurate, complete, or applicable to your specific circumstances. Always consult a qualified tax professional, such as a CPA or tax attorney, and/or your financial advisor before making any decisions.
