Roth IRA conversions have long been a go-to strategy for managing long-term tax liability. By moving funds from a traditional IRA to a Roth IRA — triggering ordinary income tax in the year of conversion — taxpayers can secure tax-free growth and tax-free withdrawals down the road.

But thanks to the newly enacted One Big Beautiful Bill Act (OBBBA), the Roth conversion calculus just got more complicated. 

According to LISI Income Tax Planning Newsletter #267, authored by Keebler & Associates Partner Robert Keebler and Jim Magner, an advanced planning attorney at The Guardian Life Insurance Company of America, OBBBA’s new tax provisions introduce both opportunities and landmines.

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“While Roth conversions will continue to be a cornerstone of first-class planning, the impact of both the senior and SALT deductions — as well as the SALT phaseout —should be modeled,” Keebler and Magner wrote.

A new senior deduction — with a catch

One headline provision in the new law is a $6,000 deduction for taxpayers age 65 or older — or $12,000 per couple. But it comes with a phaseout: The deduction is reduced to zero between $150,000 and $250,000 of modified adjusted gross income (MAGI).

MAGI is your adjusted gross income (Line 11 on IRS Form 1040) plus certain deductions added back, and it’s used to determine eligibility for various tax benefits, including this new senior deduction.

Keebler and Magner warn this phaseout creates a new tax cliff for Roth conversions.

At $150,000 of MAGI, a married couple over 65 qualifies for the full $12,000 deduction — translating to a $2,640 tax savings.

Related: Retired workers to see frustrating change to Medicare in 2026

But a $100,000 Roth conversion, if it pushes MAGI to $250,000, could not only trigger a 22% income tax, but also wipe out the senior deduction.

“At first glance, it appears that a $100,000 conversion would generate additional federal income taxes of $22,000,” they wrote. “However, the actual result is an increase in federal tax of $24,640, with the difference being the loss of the Senior deduction.”

Planning tip: Tax projections should model the marginal impact of the lost deduction. In some cases, it may be smarter to convert earlier — before age 65 — to lower future MAGI and preserve eligibility for the senior deduction later.

A revised SALT deduction offers a silver lining

Roth conversions are taxed as ordinary income at the federal and state levels. Under the Tax Cuts and Jobs Act of 2017 (TCJA), state income taxes became largely non-deductible, increasing the cost of conversions for taxpayers in high-tax states.

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The OBBBA changes that by raising the SALT (state and local tax) deduction cap to $40,000, which can reduce the effective tax burden on conversions. For some, this makes conversions more attractive — as long as they stay below the SALT cap.

“A planner may consider limiting Roth conversions in such a way to avoid exceeding the $40,000 SALT limitation,” Keebler and Magner advised. Just as with the senior deduction, planners should isolate this benefit in tax models to determine whether the deduction increases the net benefit of converting.

The SALT phaseout: a stealth tax hike

The SALT deduction, however, comes with its own phaseout for high earners. Taxpayers with MAGI over $500,000 face a 30% phaseout of the SALT deduction on income exceeding that threshold. By the time MAGI hits $600,000, the deduction shrinks to the statutory floor of $10,000.

Here’s an example from Keebler and Magner: Randy and Sarah have MAGI of $500,000 and itemized deductions of $75,000, including a $40,000 SALT deduction. They execute a Roth conversion of $100,000, pushing MAGI to $600,000. As a result, their SALT deduction is slashed to $10,000.

Related: Who saves money due to ‘Big Beautiful Bill’ tax cuts?

Translation: Their income went up by $100,000, but their taxable income rose by $130,000. At a 35% marginal rate, their effective rate on the conversion is 45.5%.

“This hidden 10.5% tax rate increase will almost certainly eliminate most, if not all, the benefits of this Roth conversion,” the authors noted. That said, they add, a larger conversion may still make sense in the long run — but only if long-term tax projections justify the tradeoff.

Bottom line

Roth conversions remain a powerful planning tool, but under the One Big Beautiful Bill Act, they demand greater precision and modeling. 

Planners (and taxpayers) must now account for the interaction between new deductions, phaseouts, and income thresholds. As Keebler and Magner emphasize, what once was a straightforward tax decision now requires a more nuanced, scenario-by-scenario analysis.

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President Donald Trump has signed into law the One, Big Beautiful Act (OBBA), and for taxpayers in high-tax states like California and New York, it may offer long-awaited relief — at least for a few years.

The law temporarily raises the cap on the federal deduction for state and local taxes — known as the SALT deduction — from $10,000 to $40,000 beginning in 2026. 

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The cap will increase slightly each year with inflation through 2029, reaching $41,616. Starting in 2030, however, the cap snaps back to $10,000 unless Congress takes further action.

Why the State and Local Tax (SALT) deduction cap matters

The $10,000 SALT cap was introduced by the 2017 Tax Cuts and Jobs Act (TCJA), limiting the amount taxpayers could deduct for property taxes and state income or sales taxes. 

There was no cap prior to the TCJA. The restriction hit hardest in states with high property values and income taxes, reducing deductions for many upper-middle-class and affluent households.

Under the OBBA, taxpayers with modified adjusted gross income (MAGI) over $500,000 in 2025 will see the expanded deduction phased down. 

Specifically, their SALT deduction will be reduced by 30% of the amount by which their MAGI exceeds that threshold — but never below the original $10,000 limit. That $500,000 threshold will also be adjusted for inflation through 2029.

Congress debated SALT workarounds — then let them stand

Earlier versions of the OBBA included provisions to limit common SALT workarounds — such as state passthrough entity taxes (PTETs) — which business owners often use to sidestep the cap.

One proposal would have barred specified service trades or businesses (SSTBs) from deducting these taxes. Another would have capped the PTET deduction based on a formula tied to a taxpayer’s unused SALT limit.

But those measures didn’t make it into the final law.

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“The adopted version of the bill merely increases the SALT cap and does not attempt to limit or address the various workarounds,” wrote Alistair Nevius in the Journal of Accountancy. The American Institute of CPAs had pushed to preserve PTET usage — and, for now, they’ve succeeded.

Will more taxpayers itemize again?

It’s too early to say exactly how many taxpayers will benefit from the higher SALT cap. In 2017 — before the TCJA took effect — more than 46 million tax returns included itemized deductions, representing about 30% to 32% of all filers. 

But after the law nearly doubled the standard deduction and imposed the $10,000 SALT cap, the number of itemizers dropped sharply — down to roughly 17 to 18 million in 2018, and just 15 million by 2022. That’s fewer than 10% of all returns.

Related: Legendary fund manager has blunt message on ‘Big Beautiful Bill’

With the cap now temporarily rising to $40,000 and the standard deduction made permanent, that calculus may shift again. 

The number of taxpayers who choose to itemize is expected to increase — particularly those in high-cost states and those who make large charitable donations, both of whom are more likely to have deductible expenses that exceed the standard deduction threshold.

Permanent standard deduction boost — and a bonus for seniors

Alongside the SALT relief, the OBBA also makes the TCJA’s expanded standard deduction permanent. Starting in 2025, the new baseline amounts will be:

• $15,750 for single filers
• $23,625 for heads of household
• $31,500 for married couples filing jointly

All adjusted annually for inflation beginning in 2026.

New deduction offers modest tax break for seniors — but comes with strings

Taxpayers age 65 and older will see a small but potentially meaningful benefit under the OBBA: a new, temporary $6,000 deduction aimed at easing their tax burden.

But before you count on pocketing that full amount, it’s important to understand the fine print.

Related: Young workers face stark Social Security reality

According to Kelly Phillips Erb, the managing shareholder of The Erb Law Firm — and widely known as the “Taxgirl” — this new provision is a deduction, not an exclusion, and not everyone will qualify.

“This is an age-based deduction,” Erb said in a recent Facebook post. “You don’t need to be receiving Social Security to claim it — you just need to be at least 65. That means if you’ve deferred your Social Security benefits to age 70, you’re still eligible.”

On the other hand, younger taxpayers who are receiving Social Security retirement benefits or are on Social Security Disability Insurance (SSDI) do not qualify unless they’ve reached age 65.

Key features of the senior deduction

Here’s how the new deduction works:

• Amount: Up to $6,000 per person.
• Eligibility: You must be 65 or older and have a valid Social Security number.
• Income Phaseouts: The deduction begins to phase out at $150,000 for joint filers ($75,000 for all others) and disappears entirely once income reaches $350,000 for joint filers ($175,000 for others).
• Refundability: It’s not refundable — meaning if your income is low enough that the deduction exceeds your tax liability, you don’t get money back.
• Filing Status: Available whether or not you itemize.
• Reporting Requirements: You must still report your Social Security income if you’re otherwise required to file.

And importantly, this deduction is temporary. It’s in effect for tax years 2025 through 2028 — unless extended by future legislation.

What It Doesn’t Do

Some confusion has already cropped up online, with questions about whether the new deduction eliminates taxes on Social Security benefits. The answer is no — at least not across the board.

“This doesn’t mean Social Security benefits are now tax-free for everyone,” Erb said. “According to the White House, before this deduction, about 64% of Social Security beneficiaries paid no tax on their benefits. With the new deduction, that number rises to 88%.”

So yes, more retirees will avoid taxes on their benefits — but high-income beneficiaries will still see some or all of their Social Security taxed.

Alongside changes to the SALT deduction, standard deduction, and the senior bonus deduction the One, Big Beautiful Act (OBBA) delivers several key updates to the tax code that will affect families, business owners, and estate planners for years to come.

Bigger — and indexed — child tax credit

Starting in 2025, the nonrefundable portion of the child tax credit increases to $2,200 per child and will be adjusted for inflation in future years. The law also makes permanent the refundable portion of the credit — currently $1,400 — and ensures that it, too, will rise with inflation.

Importantly, the income thresholds at which the credit begins to phase out remain unchanged: $200,000 for single filers and $400,000 for joint filers. Those levels, which had been temporarily increased under the 2017 Tax Cuts and Jobs Act, are now permanent.

In addition, the bill preserves the $500 nonrefundable credit for each qualifying dependent who isn’t a child — such as elderly parents or college-age children — giving some relief to so-called “sandwich generation” households caring for multiple generations.

Section 199A deduction made permanent — with a new floor

For small business owners and the self-employed, the law brings welcome news: The popular 20% qualified business income (QBI) deduction under Section 199A is now permanent.

While the House version of the bill would have raised the deduction to 23%, the final legislation retains the existing 20% rate. However, it does expand eligibility by increasing the income thresholds where the deduction begins to phase out for specified service trades or businesses (SSTBs), such as law, medicine, and financial services.

For non-joint filers, the phase-in threshold increases from $50,000 to $75,000. For joint filers, it rises from $100,000 to $150,000 — a meaningful change for those who were previously phased out too quickly.

In a further nod to Main Street businesses, the bill introduces a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 in qualified business income from one or more active trades or businesses where they materially participate.

Estate and gift tax exemption doubles — permanently

For those concerned with legacy and estate planning, OBBA also delivers a major change. Starting in 2026, the estate and lifetime gift tax exemption will increase to $15 million for individuals — or $30 million for married couples filing jointly — and will be indexed for inflation in subsequent years.

That’s a significant shift from the current exemption levels, which are scheduled to revert to roughly $6 million per person in 2026 under the pre-TCJA rules. With this change, high-net-worth individuals have a much larger window to transfer wealth tax-efficiently — assuming the new exemption remains in place long-term.

Related: How the IRS taxes Social Security income in retirement

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