The Tax Cuts and Jobs Act of 2017 reduced individual income tax rates across the board, lowering the top marginal rate from 39.6 percent to 37 percent and compressing the brackets below it. Those reduced rates are scheduled to expire after December 31, 2025. Unless Congress acts to extend them, every taxpayer will face higher rates beginning in 2026. For individuals with significant balances in traditional IRAs and employer-sponsored retirement plans, this sunset creates an unusual planning opportunity: converting pre-tax retirement assets to Roth accounts while tax rates remain at their lowest point in nearly a decade.

How a Roth Conversion Works

A Roth conversion involves transferring funds from a traditional IRA (or other pre-tax retirement account) to a Roth IRA. The converted amount is included in the taxpayer's gross income in the year of conversion, and income tax is paid at the taxpayer's current marginal rate. After conversion, the assets grow tax-free in the Roth IRA, and qualified distributions—including all growth—are entirely tax-free.^[1]

There are no income limits on Roth conversions. Unlike direct Roth IRA contributions, which are phased out for higher-income taxpayers, anyone can convert a traditional IRA to a Roth IRA regardless of income level. There is also no limit on the amount that can be converted in a single year.

Why 2025 Is the Optimal Year

The Rate Sunset

Under current law, the TCJA's individual rate reductions expire after 2025. If no legislation is enacted, the 2026 rate schedule reverts to pre-TCJA rates, adjusted for inflation. The top rate increases from 37 percent to 39.6 percent, and the brackets below it shift upward as well. A taxpayer in the 24 percent bracket in 2025 may find the same income taxed at 28 percent in 2026. A taxpayer in the 32 percent bracket may face a 33 percent rate.^[2]

The arithmetic is straightforward: if you are going to pay tax on a conversion, you want to pay at the lowest available rate. The 2025 rates are almost certainly the lowest rates these taxpayers will see for the foreseeable future, whether the sunset occurs as scheduled or rates increase through other legislation.

The Estate Tax Exemption Factor

The TCJA also doubled the estate and gift tax exemption, which stands at $13.99 million per individual in 2025. This exemption is also scheduled to revert—approximately halved—after 2025. For taxpayers whose estates approach or exceed the projected post-sunset exemption, converting traditional IRA assets to a Roth IRA serves a dual purpose: it removes the income tax liability from the estate (since the tax is paid now, reducing the taxable estate) and it converts a tax-burdened asset into a tax-free asset for heirs.^[3]

Key Considerations

Filling the Bracket

The most effective conversion strategy involves "filling" a specific tax bracket—converting just enough to use up the remaining room in your current bracket without pushing into the next one. For example, a married couple filing jointly in 2025 with $200,000 of taxable income before a conversion has approximately $183,000 of room in the 24 percent bracket (which ends at $383,900). Converting $183,000 keeps the entire conversion taxed at 24 percent. Converting $200,000 would push $17,000 into the 32 percent bracket.

The Pro Rata Rule

Taxpayers who have both pre-tax and after-tax (nondeductible) contributions in their traditional IRAs cannot selectively convert only the after-tax portion. Under the pro rata rule of IRC § 408(d)(2), each conversion is treated as coming proportionally from pre-tax and after-tax funds across all of the taxpayer's traditional IRAs. This can produce unexpected tax results for taxpayers who have made nondeductible IRA contributions.^[4]

Medicare Premium Surcharges

A large Roth conversion increases modified adjusted gross income (MAGI), which can trigger higher Medicare Part B and Part D premiums under the Income-Related Monthly Adjustment Amount (IRMAA) program. The IRMAA surcharges are based on income from two years prior, so a large 2025 conversion affects 2027 Medicare premiums. This cost should be factored into the conversion analysis.

State Tax Considerations

Mississippi imposes a state income tax on Roth conversions at a top rate of 5 percent (for income above $10,000). However, Mississippi has enacted legislation to phase out its income tax over several years, with complete elimination targeted by 2030. Depending on the phase-out schedule, converting in 2025 may mean paying state income tax on the conversion that would not apply to distributions taken in later years when the tax is fully repealed.^[5]

Practical Takeaway

A Roth conversion is not appropriate for every taxpayer. It requires paying tax today in exchange for tax-free growth and distributions in the future. The analysis depends on current versus future tax rates, the taxpayer's time horizon, liquidity to pay the conversion tax from non-retirement funds, and estate planning objectives. But for taxpayers who expect to be in a higher bracket after 2025—or whose estates will benefit from removing the income tax liability—2025 presents a window that may not come again.

The decision should be made in consultation with a tax advisor who can model the specific numbers for your situation, including the interaction with IRMAA, state taxes, and the estate tax exemption sunset.