Advisors Warn 41% Surge in Roth Conversions Can Backfire as Tax Traps Multiply
Updated
Updated · CNBC · Oct 18
Advisors Warn 41% Surge in Roth Conversions Can Backfire as Tax Traps Multiply
3 articles · Updated · CNBC · Oct 18
Summary
Fidelity data through March 31 showed Roth conversions up 41% from a year earlier, but advisors said the strategy can raise current-year income enough to erase its long-term tax benefit.
Tax projections now need to account for bracket effects, lost credits and new income phaseouts tied to Trump's tax law, including a SALT deduction worth up to $40,400 in 2026 and a $6,000 senior deduction.
A 22% bracket client with a child in college could effectively face taxes above 30% after losing an education credit, while some 10% bracket savers may convert limited amounts tax-free under the standard deduction.
Higher adjusted gross income can also trigger Medicare IRMAA surcharges and jeopardize Affordable Care Act subsidies, with the 2026 ACA cliff hitting around $63,000 for a single person and $129,000 for a family of four.
The stakes are large because U.S. households held $15.9 trillion in traditional IRAs at the end of 2025 versus $2.4 trillion in Roth IRAs, leaving many retirees to weigh partial conversions year by year.