By Craig S. Cody, CPA, Certified Tax Coach | Craig Cody and Company | Last updated July 23, 2026

The tax law changed. The core Roth conversion rules didn't.

That trips up a lot of smart humans, so let me say it plainly. The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. It made today's individual income-tax rate structure permanent. But it didn't close the door on Roth conversions or rewrite how they work.

Most IRA owners, at any income level, can still convert a traditional, SEP, or SIMPLE IRA to a Roth. The taxable portion is included in your ordinary income in the year you convert. And a completed conversion is a one-way door: you generally can't undo it. Those mechanics are simple.

What isn't simple is deciding how much to convert, and when. OBBBA changed several deductions and income-sensitive calculations that sit around a conversion, and those can make it cost more (or less) than your bracket alone suggests. In 23 years of doing this, I can tell you that's the part that decides whether a conversion helps you or quietly costs you. We model these interactions before we recommend a single dollar of conversion, and after you read this you'll see why.

The Core Rules Didn't Change

Let's nail down the basics so you're not second-guessing them.

A conversion moves money from a pre-tax retirement account into a Roth. You include the taxable portion in income this year. In exchange, that money grows inside the Roth and qualified withdrawals come out tax-free later.

There's no current income limit on doing a conversion. But it's worth being precise about that, because there used to be one. A former $100,000 modified-AGI limit, and a restriction that generally blocked married-filing-separately taxpayers, were both eliminated beginning in 2010. So income doesn't stop a conversion today, though direct Roth contributions still have their own income limits.

A few longstanding exceptions do apply. These aren't OBBBA changes, but they matter:

• Your required minimum distribution can't be converted. If you're at RMD age, that dollar amount has to come out first, and it isn't eligible.
• A SIMPLE IRA has a two-year wait. You generally can't move traditional SIMPLE IRA money to a Roth during your first two years in the plan.
• Inherited IRAs are restricted. A nonspouse beneficiary generally can't convert an inherited traditional IRA. A surviving spouse who treats it as their own is a different case.

So "anyone, any amount" is close, but the honest version is "most owners, most eligible balances, with a few real exceptions."

Your Basis Follows the Pro-Rata Rule

Here's one that surprises people, so stay with me.

If you've made nondeductible traditional IRA contributions, part of your conversion may come out tax-free, because you already paid tax on those dollars. But you don't get to point at one account and say "I'm converting only the after-tax money."

Form 8606 applies a pro-rata calculation that generally aggregates all of your traditional, SEP, and SIMPLE IRAs, using their combined value at year-end. Your basis gets spread proportionally across everything. That's why the taxable slice of a conversion is often bigger than folks expect, and it's the single biggest reason a backdoor Roth can produce a surprise tax bill.

It's a One-Way Door

Federal law no longer lets you unwind a completed conversion. Recharacterizing a conversion back to a traditional IRA was eliminated for conversions done after 2017 (see IRS Publication 590-A for the mechanics).

You can't wait until next April, look at the finished return, and decide the conversion was too big. That's exactly why sizing it right the first time matters so much.

If you want the deeper case for why conversions are one of the few moves that let you choose which year's tax rate applies to your retirement money, I've written that up separately in Roth conversions for tax-free income. This piece is about what OBBBA did to the decision.

What Did Change: The Math Around the Conversion

OBBBA didn't touch the core mechanics. It changed the tax environment the conversion happens in, and a few of those changes hit your real marginal rate. Your real marginal rate is what matters, not the number printed on a bracket table.

The 2026 Rate Sunset Is Gone

Before OBBBA, the individual rate tables from the 2017 law were scheduled to expire after 2025. That created a deadline: convert while rates were low, before they jumped.

OBBBA made the seven-rate structure (10, 12, 22, 24, 32, 35, and 37 percent) permanent. The dollar amounts inside the brackets still adjust each year, but the scheduled 2026 reversion is gone.

That's good news, and it changes the posture. Conversion planning goes back to what it should always have been: a deliberate, multi-year exercise in filling your lower brackets on purpose, not a race to beat one sunset. Just know that "the clock is gone" applies to the rate sunset specifically. Other OBBBA provisions still have expiration dates, so timing hasn't stopped mattering. More on that below.

The Temporary Senior Deduction a Conversion Can Trip

OBBBA created a new deduction for older taxpayers, and a conversion can eat into it.

For 2025 through 2028, an eligible taxpayer age 65 or older can claim an additional deduction of up to $6,000 per qualifying person (so up to $12,000 for a couple where both qualify). It begins phasing out once modified adjusted gross income passes $75,000 for an individual or $150,000 on a joint return, and married taxpayers generally have to file jointly to claim it.

Run a conversion through that phase-out range and it can cost you twice: the tax on the conversion income, plus the tax on the deduction you just lost. One caution on how I'd say that, because precision matters here. A lost $1 deduction doesn't cost you $1. It adds $1 to taxable income, and the real cost is that dollar taxed at your marginal rate. Either way, a conversion that looks like it's sitting in the 12 or 22 percent bracket can carry a higher effective cost than it appears. And remember, this deduction is temporary. Under current law it's gone after 2028.

The 2026 SALT Cap Has Its Own Phase-Down

OBBBA raised the federal cap on deducting state and local taxes, but it added a phase-down at higher incomes, and the numbers move each year.

For 2026, the SALT cap is $40,400 ($20,200 for married filing separately). It starts phasing down once modified AGI passes $505,000 ($252,500 for married filing separately), dropping by 30 percent of the income above that line, and it can't fall below $10,000 ($5,000 for married filing separately).

Here's the part people miss: this only bites if you itemize and your state and local taxes are high enough to actually be limited by the cap. If you take the standard deduction, losing part of a theoretical SALT cap costs you nothing. But if all the pieces line up (you itemize, your SALT is capped, and your income lands in that phase-down corridor), conversion income can shrink the deduction while also raising taxable income directly. That combination can push your effective marginal cost well above the stated bracket.

The higher cap is temporary too. It runs through 2029 and, under current law, reverts to $10,000 in 2030. So multi-year planning still matters.

ACA Premium Credits: Read This Twice If You're an Early Retiree

For an early retiree buying coverage on the Marketplace, this may be the most expensive interaction of all, and two separate things changed for 2026.

First, the temporary rule that let some people above 400 percent of the federal poverty line still qualify for a premium credit expired after 2025. For 2026, eligibility generally snaps back to the old 100-to-400 percent range. That expiration wasn't OBBBA. It was the 2021 through 2025 expansion simply ending.

Second, and this one is OBBBA: for tax years beginning after 2025, the income-based caps on repaying excess advance premium credits are gone. Before, if your income came in higher than estimated, your repayment could be limited. Starting in 2026, it isn't.

Put those together and a conversion can do real damage. It can shrink your credit, push you over the 400 percent cliff and eliminate it entirely, and then require you to repay the full excess advance credit you received during the year. For someone getting substantial Marketplace subsidies, that can cost more than the income tax on the conversion itself. That's a cliff, not a gentle slope.

The Familiar Interaction Points Still Apply

OBBBA added new moving parts. The old ones didn't go anywhere.

• Medicare IRMAA surcharges. Cross an income tier and your Medicare Part B and Part D premiums go up. The cost is delayed: Medicare generally looks at your return from two years earlier, so a 2026 conversion would typically raise your 2028 premiums.
• The 3.8% net investment income tax. The conversion itself isn't investment income, so you're not paying the 3.8 percent on the conversion. But the taxable amount raises your MAGI, and that can pull your existing investment income (interest, dividends, capital gains) into the tax. Those thresholds aren't indexed for inflation, so more people drift into them over time.

The point across all of these is the same. The right question isn't "what bracket am I in?" It's "what happens to my total tax bill, federal and state, when I add the next dollar of conversion income?" Those aren't always the same answer.

The Backdoor Roth Still Works

For higher earners, the backdoor Roth is still on the table. OBBBA didn't touch it.

The move is familiar: make a nondeductible traditional IRA contribution, then convert it. But the pro-rata rule I described earlier still applies. If you're holding other pre-tax money in traditional, SEP, or SIMPLE IRAs, Form 8606 treats them all as one pool using the year-end value, so part of your conversion will be taxable even if the contribution you just made was after-tax.

One useful distinction: a pre-tax 401(k) or similar employer plan isn't part of that IRA aggregation, so it doesn't dilute the math the way IRA balances do. But roll that 401(k) into a traditional IRA and it becomes part of the pool. Run this before you assume a backdoor Roth is clean. If penalties, withholding, and timing are on your mind, avoiding penalties on Roth conversions covers more of the traps.

What This Means for You

The opportunity is fully intact. That's the good part, and it's real.

What got more nuanced is the sizing. The right amount to convert depends on a lot more than the top of your current bracket. It can turn on the senior deduction, the SALT phase-down, ACA credits, IRMAA, the net investment income tax, your state taxes, your future required minimum distributions, and what your filing status might look like later if one spouse eventually files as a single taxpayer, among other things. That's not the whole board either, but it's the part most people never see coming.

A conversion that looks efficient bracket-by-bracket can turn out expensive once these interactions show up. The reverse is also true. A conversion that looks pricey this year can still be a win over your lifetime if it lowers future RMDs, gets ahead of higher future rates, or supports an estate plan. That's why we weigh the lifetime result, not just this April's tax bill.

This is the difference between a tax preparer conversation and a tax advisor conversation. One records what already happened. The other sets up what's coming. A well-sized conversion is a textbook case of the second kind, and I've made that argument before in why filing a return isn't a tax strategy.

Who This Isn't For

Straight talk, because you've earned it.

A conversion isn't automatically right just because the rules survived OBBBA. A big one can be a poor fit if it burns through the senior-deduction phase-out, pushes you over an IRMAA tier, knocks out an ACA credit, trips the SALT phase-down, or drags your investment income into the 3.8 percent tax, all without a real expectation that your rate will be higher later.

Even then, "don't convert" usually isn't the only answer. It might be a smaller conversion, stopping just below a costly threshold, spreading it over several years, pairing it with charitable giving, or waiting for a genuine low-income window. Sometimes the right amount really is zero.

The tool is powerful. It isn't universal. The humans it helps most are the ones who can pay tax at a genuinely lower effective rate today than they'd pay later, and even for them the amount is a calculation, not a hunch.

What to Do Now

The old 2026 rate sunset is no longer driving this. But timing still matters. The senior deduction ends after 2028, the higher SALT cap runs out after 2029, and every year that passes is one fewer year to convert before RMDs begin.

If a conversion is on your radar for 2026, the next step is to run the numbers against your actual income picture. Not just your bracket, but the senior deduction, the SALT phase-down, ACA credits, IRMAA, the net investment income tax, your state taxes, and your future RMDs. That's the modeling that gives you a defensible amount instead of a guess.

If you'd like us to run that for your situation, reach out and we'll put it on the calendar. We'll look at the whole board before recommending a single dollar. Let's talk.

Craig S. Cody, CPA | Agency CPA | craigcodyandcompany.com

This article reflects federal tax law and published federal guidance as of July 23, 2026. Some dollar amounts and thresholds adjust annually, others are fixed, and several provisions discussed here are temporary or scheduled to change. State tax treatment may differ. This is general education, not tax, legal, or investment advice for any specific person. Please confirm current law and discuss your circumstances with a qualified advisor before acting on any strategy described here.