Rethinking Roth IRAs After the Big Tax Bill

2025-08-04

Mike Smith

Mike Smith

Consulting Director




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Key Takeaways

  • Elements of the new U.S. tax law—like rate certainty and a new deduction for individuals 65 and older—might make Roth IRA conversions more attractive for some investors.
  • The bill also directs the Treasury Department to examine whether RMDs should be required for Roth IRAs.
  • For those converting to a Roth IRA, direct indexing strategies can help generate tax losses to offset conversion-related income, potentially lowering the overall tax impact.

It may be the dog days of summer, but that doesn’t mean you should snooze on retirement planning.

Especially with the recent passage of the One Big Beautiful Bill, signed into law earlier this summer.

While this legislation does not directly address individual retirement accounts (IRAs), it ushers in a wave of sweeping tax changes. These new laws make today an opportune time for investors and their advisors to re-examine their retirement strategies, including the use of Roth IRAs.

Roth Review

A Roth IRA is a type of retirement account where taxes are paid on contributions but not withdrawals. This allows for tax-free growth, making these accounts a powerful tool for long-term retirement savings.

In addition, there are no required minimum distributions (RMDs), or mandatory withdrawals, in a Roth IRA. Contributions made to the account can also be withdrawn at any time. Together, these factors make them ideal for legacy planning.

Conversion Conversation

The One Big Beautiful Bill does not make any changes to contribution limits or income phase-outs (where contributions are either limited or not permitted based on income) in Roth IRAs. However, there are some elements of the bill that indirectly impact Roth IRAs. These include:

1. Rate certainty through 2028
In our view, this tax stability strengthens the case for thoughtful conversions from traditional IRAs or 401(k)s to Roth IRAs.

2. “Senior deduction” of $6,000/year
This deduction applies to individuals 65 years or older and is in addition to the standard deduction. This may allow for higher Roth conversions as the deduction reduces taxable income levels.

3. Expanded SALT deduction cap
The One Big Beautiful Bill increases the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 from 2025 through 2029. The higher SALT deduction cap may make Roth conversions more attractive by lowering the overall tax burden during the conversion year.
 

In addition, the bill calls for the Treasury Department to conduct a study on mandating RMDs for Roth IRAs. It’s too early to speculate on how long this study could take or what recommendations may come from it, but investors should be aware of a potential rollback in RMDs.

Trimming Taxes

As with many financial decisions, the right retirement savings approach depends on your personal circumstances and goals as well as the broader tax outlook. For investors interested in converting a traditional IRA to a Roth IRA, direct indexing strategies can provide tax benefits to aid that conversion. A direct indexing portfolio allows for the intentional generation of capital losses which can be carried forward and offset future income. So, the income that is generated by a Roth conversion can be partially, or completely, offset by the tax losses generated by the direct indexing portfolio. 

Strategy Season

Ultimately, while the One Big Beautiful Bill does not directly address individual retirement accounts, we believe this law has created some short-term opportunities that investors can take advantage of in a Roth IRA. At the same time, the bill introduces some longer-term risks for Roth IRAs—the potential for RMDs to become mandatory, for example.

With the new law in place, it’s a good time to revisit with your financial advisor whether a Roth IRA fits into your overall retirement strategy and the best way to do it. Because even in the summertime, don’t sleep on your retirement goals. 

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