The Roth Conversion Window Is Closing: What You Need to Know Before 2026

The Tax Cuts and Jobs Act (TCJA), passed in 2017, created historically low tax brackets that are set to expire at the end of 2025. Starting January 1, 2026, tax rates will increase across all brackets unless Congress extends the cuts — and while extensions are possible, relying on that outcome is risky. For retirees in the Tampa Bay area and across Florida, this creates a meaningful window to convert traditional IRA funds to Roth IRAs at rates that may never be this favorable again.

Current tax brackets are lower than they were in 2010 and are projected to be significantly lower than post-2025 rates. A married couple filing jointly in the 22% bracket in 2025 could see that same income taxed at 25% in 2026—a full 3 percentage points higher. For high-income earners, the top bracket jumps from 37% to nearly 40%. When you're converting hundreds of thousands of dollars from traditional to Roth, even a small percentage increase translates to tens of thousands in additional taxes.

Roth conversions are powerful because they lock in your tax rate at conversion time. Whatever you convert, you pay tax on the full amount in the year of conversion. But once the funds are in the Roth, all future growth and distributions are tax-free. If you convert now at 22% tax, that growth over the next 20 or 30 years comes out tax-free at rates potentially much higher. This arbitrage — converting at low rates and withdrawing at potentially high rates — is a core retirement planning strategy.

The conversion ladder strategy is particularly relevant for retirees who need flexibility. You don't have to convert your entire IRA at once. Some retirees convert strategically across multiple years, staying within specific tax brackets to control their overall tax liability. A common approach for Tampa Bay retirees is to convert just enough each year to fill their bracket—working up to where the next dollar of income would push them into a higher bracket. This maximizes the benefit of lower rates without overextending.

Roth conversions do have coordination considerations. A conversion increases your Modified Adjusted Gross Income (MAGI), which affects Medicare premiums (IRMAA surcharges) two years later. Additionally, conversions can affect Social Security taxation and phase-outs for various credits and deductions. However, these coordination issues don't mean conversions are bad — they mean timing and amount matter. Working with a tax-savvy advisor helps you manage these interactions and find the optimal conversion amount for your situation.

For retirees already taking Social Security or planning to soon, pro-rata rules add another layer. If you have both traditional and Roth IRA balances, conversions are calculated on a pro-rata basis using all your IRAs. This can be a stumbling block for some, but it's not insurmountable. SEP IRAs and SIMPLE IRAs count toward the pro-rata calculation, but employer 401(k)s don't—meaning you might roll 401(k) balances to another employer plan to isolate your IRA pro-rata calculation. This planning opportunity is available now and will still exist after 2025, but the tax-rate arbitrage opportunity may not.

Florida residents have a particular advantage in Roth conversion planning: no state income tax. Many retirees move to Tampa Bay or other Florida locations specifically for this tax benefit. A conversion that would trigger state income tax in another state is state-tax-free in Florida. If you've recently relocated to Florida or are considering it, the combination of no state income tax plus historically low federal rates creates a powerful environment for Roth conversions.

It's worth understanding what happens if Congress does extend the TCJA. Even in that scenario, Roth conversions at current rates aren't wasted — you've still moved money from a taxable account to a tax-free one. The conversion remains beneficial if you expect your future tax rate (from RMDs, Social Security, or other income) to exceed the rate you paid at conversion. The expiration simply makes the case more urgent, not more binary.

One practical consideration: you need cash on hand to pay the tax bill from a conversion. Ideally, you pay the taxes from non-retirement funds rather than withholding from the converted amount itself. If you convert $50,000 and withhold $11,000 for taxes from the IRA, only $39,000 lands in the Roth. Paying the $11,000 from a checking account means all $50,000 goes to work tax-free. This detail is easy to overlook but makes a meaningful difference over time.

The window is real, but it's not necessarily an emergency. If conversions make sense for your plan, you have several months left in 2025 to execute them. But waiting until November or December limits your flexibility. Converting earlier gives you the full year to understand the impact, make adjustments if needed, and coordinate with other tax planning. Many financial advisors recommend moving on conversions by September or October to have time to process the implications and execute related planning like charitable gifts or tax-loss harvesting.