Roth Conversion Strategy in the New Tax Era

If you’re a regular reader of the STWS blog, you’ll know it’s about that time of year again… In recent years, writing about the JORC (the “joy of Roth conversions,” naturally) has become a bit of an annual tradition. It started in 2024, when I wrote an in-depth article exploring why Roth conversions could be a smart move for many federal employees and retirees through TCJA’s expiration in 2025. The topic clearly struck a chord with readers far and wide, and it even led to an interview feature in Barron’s. So, I doubled down in 2025, following the passage of the One Big Beautiful Bill Act (OBBBA), to cover the impact of those key legislative changes on the Roth conversion strategy.

And now… I’m back with an update for 2026, to help explain why Roth conversions remain a strategy for tax-savvy federal employees and retirees looking for tax flexibility.

Pre- vs. Post-TCJA

As I mentioned in my prior article, the Tax Cuts and Jobs Act (TCJA) of 2017 brought with it historically low tax brackets, but these were originally set to expire on December 31, 2025. Upon TCJA’s expiration, federal tax rates would’ve reverted to their higher pre‑TCJA rates beginning on January 1, 2026, unless Congress acted otherwise. Those looming increases, examples below, created a sense of urgency around Roth conversions.

But on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) permanently extended the TCJA tax brackets (10-37%) with inflation-indexed thresholds, making them indefinite, meaning that new tax legislation will have to be passed to change these rates. This effectively extends the timeline for Roth conversions at historically low rates, since, at least for the moment, these brackets aren’t going away anytime soon.

2026 Federal Tax Brackets

The Continued Case for Conversions

Now, you may be thinking something along the lines of, “Katelyn, if you’re saying that tax rates are and will remain historically low indefinitely, why should I bother converting assets over from pre-tax to Roth at all?”

I hear you. Here’s the thing: According to FiscalData.Treasury.gov, the U.S. national debt sits at $36.60 trillion as of the date this article is being written ($36,595,800,737,387, to be exact). With debt like that, it is extremely unlikely that we will be able to get away with historically low tax rates forever. While the current rates are “permanent” or “indefinite,” meaning that Congress would have to pass new tax legislation in order to amend or revoke these rates, it’s very likely that that could come to pass over the long-term… and you don’t want to be lacking tax diversification in retirement if that does come to pass.

So, with that said, how do we take advantage of these historically low rates?

We consider the opportunity on Roth conversion I mentioned in last year’s article officially extended. We should look to Roth conversions as a way to shift assets from pre-tax to after-tax buckets while tax rates are low, with the expectation that tax rates will potentially be higher at some point in the future.

Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer –

How Do Roth Conversions Work?

Probably a good idea to touch base on how a Roth conversion actually works. A Roth conversion is when you take a distribution from your Traditional IRA, pay income taxes on the total amount of the distribution in the current tax year, and then immediately convert the distribution into a Roth IRA, so that it can grow tax-free in the Roth IRA ever after. If you are looking to convert pre-tax TSP funds, you’ll need to first do a nontaxable direct rollover from your TSP into a Traditional IRA and then convert the funds over to a Roth IRA in order to avoid a very nasty misreporting error that could jeopardize the legitimacy of your conversion (for more on that, check out Ed Zurndorfer’s article here).

Filling Out the Lower Tax Brackets

To make the most of a Roth conversion strategy, you ideally want to leverage lower tax brackets, especially in years where you income may be lower or your deductions may be higher (if itemizing). By strategically converting pre-tax retirement funds into Roth IRAs, Feds can effectively “fill up” these lower tax brackets, mitigating the tax burden on future withdrawals.

The first step is to understand your estimated taxable income for the current tax year and where it places you in the federal income tax brackets and your state income tax brackets, if you live in a state that has state income tax. Let’s say you file taxes Married Filing Jointly and you and your spouse are looking at having roughly $150,000 in taxable income for 2025. If we consult the 2025 federal income tax rates chart above, we’d find that that puts you solidly in the 22% tax bracket, which spans from $96,950 to $206,700. If we take the top of the tax bracket and subtract it from your estimated taxable income for the year, we’d find that you could safely convert about $55,000 to a Roth IRA without exceeding the 22% tax bracket ($206,700- $150,000 = $56,700).

Those who are looking to take a more aggressive Roth conversion strategy might seek to go even further and fill up the 24% bracket, since the jump from 22% to 24% isn’t as drastic as the jump from the 24% bracket to the 32% bracket. In this scenario, you’d take the top of the 24% bracket and subtract it from your current estimated taxable income to arrive at a conversion amount of roughly $240,000 ($394,600 – $150,000 = $244,600).

Optimizing Tax Efficiency: Paying Taxes from Taxable Funds

When executing Roth conversions, it’s prudent to aim to pay the taxes due on the conversion from either cash savings or non-retirement brokerage accounts, if feasible. If you’ve got a high-interest CD maturing anytime soon, this could be a good use for those liquid funds. By covering the taxes due on the conversion from outside of the pre-tax retirement account, you can ensure that the full amount of the conversion gets deposited into the Roth IRA, thus attempting to maximize the long-term benefits of the conversion strategy. However, don’t immediately discount the viability of a Roth conversion strategy just because you can’t pay the taxes from outside your pre-tax retirement account. It may be that some amount of Roth conversion would be better than no conversion, especially in the face of potential rising tax rates at some point down the line.

Benefits of Roth Conversions

The beauty of a solid Roth conversion strategy is that it can help you tax-diversify your retirement portfolio, allowing you to adjust to changing tax rates over the course of your retirement period. When tax rates are low, you can draw from pre-tax assets and pay lower income tax. When tax rates are high, you can draw from your Roth assets and avoid income tax (since you already paid taxes on the principal invested in the Roth portion). When leveraged properly, this strategy can help you pay less overall taxes throughout your retirement period.

Other than bolstering your tax flexibility in retirement, Roth conversions can have other benefits:

• Avoiding the “Widow Tax“: Roth conversions hold an unexpected benefit for the spouses of federal employees and retirees as well. In contrast to a Traditional IRA or pre-tax TSP in which each dollar is taxed as income upon distribution, the tax-free growth and distributions generated from Roth accounts may be potentially advantageous. This is especially pertinent since the surviving spouse will have to face the (unofficially named) “widow tax” that comes with switching from Married Filing Jointly to Single filer status following the death of their spouse. Single filers typically face much higher tax rates compared to Married Filing Jointly filers. By strategically incorporating Roth conversions into their retirement planning, Feds can provide their surviving spouses with a valuable source of tax-free income, bolstering their financial security in later years.
• Reducing Future RMDs in Higher Tax Environments: Another compelling reason to consider Roth conversions is the potential to lower Required Minimum Distributions (RMDs) in the future if tax rates do rise. By proactively converting pre-tax retirement account funds into Roth IRAs, Feds can reduce the taxable portion of their retirement income, thus mitigating the impact of higher future tax rates on RMDs. According to The Secure Act 2.0 of 2022, the RMD age has been tiered as follows:
  • If you were born before July 1, 1949, your RMD age is 70½.
  • If you were born July 1, 1949 – December 31, 1950, your RMD age is 72.
  • If you were born January 1, 1951 – December 31, 1959, your RMD age is 73.
  • If you were born after December 31, 1959, your RMD age is 75.
• Estate Planning Benefits: A Roth conversion strategy may have further-reaching benefits than just the Roth account owner. In my roundup on The Best (and Worst) Types of Accounts to Inherit, I rated Roth IRAs as the best type of account to pass to your beneficiaries, and with good reason: non-spouse beneficiaries of a Roth IRA inherit the assets generally tax-free and they receive a 10-year window during which can keep the rest of the Roth assets invested and growing completely tax-free – for ten years! Since the funds are in a Roth IRA, an RMD is not required, but the beneficiary must withdraw 100% of the assets before the end of the 10^th year after the year of death of the original account owner (ex. if you inherited the account when the original account owner passed away in July of 2021, all assets must be distributed by 12/31/2031). To give you an idea of how much tax-free growth could be earned over that ten year period, if we assume you inherited a $1,000,000 Roth IRA that is moderately aggressively invested and earning an average of 6% per year, you’d be looking at total growth of $790,847.70 on that $1,000,000 principal amount – and it’s all completely tax-free, thanks to the Roth registration. Converting pre-tax assets to Roth can be pivotal component of estate and legacy planning, particularly for folks who are interested in helping their beneficiaries keep more of what they leave behind.

This is a hypothetical illustration and is not intended to reflect actual performance. Future performance cannot be guaranteed, and investment yields will fluctuate with market conditions. Investments involve risk and you may incur a profit or a loss.

What’s the Bottom Line Here?

With the extension of low tax brackets by the OBBBA, Roth conversions have moved from a temporary tactic to a long-term tax strategy that may be appropriate for some federal employees and retirees.

That said, Roth conversions are a complex financial planning strategy. For that reason, we always recommend that you consult with a qualified, fed-focused financial advisor and tax professional to assess individual circumstances and tailor a Roth conversion strategy that aligns with your specific retirement goals and objectives before taking any action. If you need help, STWS has got you covered – email us at [email protected] to schedule your complimentary financial planning consultation today.

**Written by Katelyn Murray, CFP®, ChFEBC®, FBS®, CFT-1™, ECA. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **

Roth Conversions: Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

**Written by Katelyn Murray, CFP®, ChFEBC®, FBS®, CFT-1™, ECA. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **