Roth IRA Conversions: A Strategic Decision in an Uncertain Tax Future

How high-net-worth taxpayers can use Roth conversions to manage tax risk and preserve wealth amid changing tax laws

For high-net-worth taxpayers, Roth IRA conversions are less about following blanket rules and more about making disciplined, forward-looking decisions under uncertainty. The core question for when to convert traditional IRA funds to a Roth account is seemingly simple: Will your marginal tax rate be higher when you withdraw retirement funds than it is today? If the answer is yes or even “possibly”, then a Roth conversion may be a powerful planning tool for you to pursue.

Recent legislative extensions and changes under H.R. 1, formerly the One Big Beautiful Bill Act (OBBBA), combined with longstanding estate planning advantages, make this a timely moment to revisit the strategy.

The core strategy: Why tax rates matter more than investment returns

If similarly invested, both Roth IRAs and traditional IRAs produce the same after-tax result if tax rates are identical at contribution and upon distribution. The real driver of value in choosing between these options is the difference between today’s marginal tax rate and your future tax rate.

• If you expect lower tax rates in retirement, traditional IRAs tend to win.
• If you expect higher tax rates later, Roth IRAs are generally superior.

For high-income taxpayers who expect continued earnings in retirement, significant required minimum distribution requirements, or higher taxes imposed by future Congresses, Roth conversions can serve as a form of tax-rate insurance since the only known factors are today’s tax rates and current tax legislation.

How recent tax law changes affect Roth conversion timing

H.R. 1 permanently extended the lower tax brackets originally enacted under the 2017 Tax Cuts and Jobs Act. This removes the once-feared “tax cliff” that was expected after 2025 and eliminates the urgency to convert immediately just to beat a scheduled rate increase.

However, the law also introduced temporary deductions and expanded benefits between 2025 and 2028, including enhanced standard deductions, age-based deductions, and a temporarily higher SALT deduction cap. For many affluent taxpayers, this creates a planning window:

• These deductions may allow more income (including income related to Roth conversions) to be taxed at lower effective rates.
• The optimal approach is often multi-year, bracket-filling conversions, rather than large one-time conversions that push income into higher brackets or trigger benefit phaseouts.

These temporary deductions start to phase out as taxpayers adjusted gross income increases. As a result, this strategy becomes less about “converting everything now” and more about precision and pacing based on multi-year analyses.

Estate and legacy benefits: Where Roth IRAs quietly shine

While income tax savings is usually the primary motivation for Roth conversions, estate planning benefits are a meaningful secondary advantage, especially for families with taxable estates.

Key advantages include:

• Roth IRAs have no required minimum distributions (RMDs) during the owner’s lifetime, allowing assets to compound tax-free for longer.
• Roth IRAs permit tax-free distributions to heirs, provided that the Roth has satisfied the five-year rule.
• Under current law, heirs must generally withdraw inherited Roth IRAs within 10 years. Unlike traditional IRAs, those withdrawals are not subject to income tax.

By contrast, inherited traditional IRAs can suffer from double taxation: estate tax at death and income tax when heirs withdraw funds during the 10-year mandatory distribution period which often coincides with the heir’s own peak earning years. In high-tax scenarios, this erosion can be substantial. The combined estate and income tax rate for an inherited IRA can be as high as 60-70 percent.

For many families, Roth assets are simply better assets to leave to children while traditional IRAs are often better suited for charitable bequests.

Note: Both regular IRAs and Roth IRAs are included in an individual’s gross estate. However, the new permanent estate and gift exemptions of $15 million per taxpayer in 2026 will mean that fewer taxpayers are subject to federal estate taxes.

Planning for the unknown: Will tax rates really go up?

No one knows where future income tax rates will land. History suggests that while rates fluctuate, they tend to remain within politically tolerable bands. At the same time, persistent government deficits and demographic pressures make some increase in future tax burdens plausible.

State taxes add another layer of uncertainty. Unlike federal taxes, state income taxes can often be mitigated through relocation, particularly before required distributions begin. This flexibility can also influence whether a Roth conversion makes sense.

Since we are not able to predict the future with certainty, the Roth conversion strategy permits taxpayers to diversify tax exposure. Holding a mix of traditional and Roth assets likely provides families with greater control over taxable income in retirement, regardless of how tax policy evolves in the future.

A disciplined, long-term approach

Roth conversions are most effective when executed thoughtfully over multiple years with careful attention to tax brackets and credit/deduction phaseouts, and integrated into a broader income, estate, and residency plan.

Roth conversion strategies are not a one-size-fits-all solution. For high-net-worth taxpayers facing uncertain future tax regimes, they remain one of the most flexible and powerful tools available.

As always, the right answer depends on your broader financial picture, family goals, and tolerance for legislative uncertainty. Strategic planning should drive the decision.

Keiter’s Private Client tax services team can help you assess your Roth strategy to align with legislative changes and your specific long-term goals. Contact your Keiter Opportunity Advisor | Email | Call 804.747.0000 for more information.