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I received an alert from Fidelity today showing new tax issues to consider when planning a Roth conversion.
Essentially, the 2025 tax act added new benefits such as the senior tax deduction and higher limits on SALT deduction. Both have income limits based on MAGI income and thus both could affect the short-term value of a Roth conversion. The car loan interest deduction may also be a factor.
Could there be a short-term loss with a conversion?
I don’t have Roth conversion plans, but maybe you do. In any case, a couple of things to consider in 2026.
You are correct. On the other hand, RMDs create similar issues. That’s why I do Roth conversions within a range of my estimated tax rate while I am taking RMD’s. Today, I only have my investment income and pensions. Next year, I will have SS added to that. Then at 73 I will have RMDs. The rate moves up during that time and I fill the gap with Roth conversions.
Harold, you wrote, “while I am taking RMD’s”, then “Then at 73 I will have RMDs”
Did you mean to write in the first instance BEFORE I take RMDs?
Also in order to qualify for the full $6,000 per person senior deduction the maximum Modified Adjusted Gross Income (MAGI) must be under 75K for singles and 150K for couples.
Yes sir. But fortunately the deduction is gradually lost if you exceed the MAGI thresholds and not a cliff like IRMAA.
Related comments: https://humbledollar.com/forum/calculating-the-maximum-income-while-staying-in-the-12-tax-bracket/#comment-2083890