Roth individual retirement account conversions are a popular strategy to reduce pretax balances and kickstart tax-free growth.
But the converted balance boosts your income, which could have unexpected consequences amid new laws enacted via President Donald Trump’s “big beautiful bill.”
For some investors, more earnings could trigger a “tax torpedo,” or an artificially higher rate, due to the phaseouts, or benefit reductions, for some of Trump’s new tax breaks, experts say.
If that happens, the “tax cost” of the Roth conversion could be higher than your marginal tax rate — the bracket that applies to your last dollar of income — according to certified financial planner Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.
“The unintended consequences of Roth conversions are higher now than in the past” because of Trump’s “big beautiful bill,” Jastrem said.
