Re-Visiting Roth Conversions

A shifting landscape for retirement and estate planning.

Planning for Roth conversions has long been a staple in year-end tax planning. Roth conversions involve taking a tax-deferred account, such as a 401(k) or individual retirement account (“IRA”), and transferring it into a Roth account. By doing so, any tax-deferred amounts, including principal and associated earnings, are converted into taxable income. 

Although filers must accelerate the recognition of taxable income, these amounts are no longer subject to the onerous required minimum distribution (“RMD”) regime that typically plagues retirees with hefty income tax bills and threats of IRS penalties if managed incorrectly. Structured properly, Roth conversions can allow filers to “choose” their tax rate, only converting amounts that avoid their next marginal tax bracket.

For filers with taxable estates or those who have already utilized their entire unified gift and estate exemption (in 2025, $13.99m per individual, $27.98m per couple), a recent tax law change has introduced a new planning consideration. Although the population of filers impacted is small (<1% of filers), the dollar amounts could be meaningful.

Beneficiaries of tax-deferred accounts inherited from such filers typically face two layers of taxation: a 40% rate at the estate level when the accounts are valued for estate tax purposes, and an income tax rate as high as 37% upon withdrawal. Historically, beneficiaries could offset the “double tax” on these accounts through the Income in Respect of a Decedent (IRD) deduction, designed to ensure that assets used to settle a decedent’s estate tax liability were not subject to income tax as well.

Recent legislative changes have altered how that deduction works—and may make Roth conversions more attractive.

The One Big Beautiful Bill and Its Impact

In July 2025, Congress passed the One Big Beautiful Bill (OBBB), which, among other provisions, placed a limitation on the tax benefit of itemized deductions. For high-income taxpayers, the tax benefit of itemized deductions in 2026 and onward will be reduced from 37% to 35%. Filers attempting to deduct an amount equal to their highest taxed income will unpleasantly discover they owe residual tax.

Beginning in 2026, beneficiaries who receive distributions from tax-deferred accounts will no longer receive the full benefit of the IRD deduction that offsets income tax attributable to distributions. As a result, a larger portion of inherited retirement assets may ultimately be lost to taxation.

Why Roth Conversions May Deserve a Second Look

Completing a Roth conversion can help mitigate this limitation by eliminating your beneficiaries' reliance on the IRD deduction. This can substantially simplify your beneficiaries’ tax profile, particularly for those who must withdraw the inherited assets within a short time.

By converting, you may be able to reduce your beneficiaries' income tax exposure on retirement assets. In many cases, this can preserve more after-tax wealth for future generations.

Beneficiaries of Existing Inherited IRAs Should Also Double-Check

If you are a beneficiary receiving distributions from inherited tax-deferred accounts and you have been taking advantage of the IRD deduction, it might make sense to accelerate your withdrawals before the new limitation rules come into effect.

Key Factors to Evaluate

An account conversion or accelerated drawdown is not suitable for everyone. Several variables must be weighed carefully in collaboration with your advisors and tax professionals:

• Current and future tax brackets: If you or your beneficiaries expect to be in a higher tax bracket later, paying taxes now may be advantageous.
• Tax attributes: a conversion or acceleration of income may allow you to utilize loss carryforwards, creating a more tax-neutral outcome.
• Liquidity to pay conversion taxes: The ability to pay taxes from non-retirement funds helps preserve the full value of your converted assets.
• State tax exposure: Moving in or out of a higher or lower-tax state can change the analysis. Certain states may also have state-level estate taxes.
• Charitable intentions: Planned gifts may offset estate taxes upon your passing or taxable income recognized from a conversion (although charitable gifting in the year of a conversion will also be subject to the same itemized deduction limitation).
• Your longevity: The decision to convert could be very different depending on whether you are in your 60s or 80s.
• Beneficiary circumstances: Different beneficiaries are subject to different mandatory distribution timelines on inherited accounts. Consider the potential amount of deferral available. If you have multiple beneficiaries, consider splitting your tax-deferred accounts between them so that no single beneficiary has income taxed at their highest marginal tax bracket (so the itemized deduction limitation won’t apply).

Next Steps

Completing a Roth conversion or accelerating the distribution from an inherited tax-deferred account allows you and your beneficiaries to take advantage of current tax treatment while providing clarity and efficiency for your estate plan.

It is possible that Congress may adjust or clarify this rule in the future; however, given its other competing interests, proactive planning remains the most reliable way to protect family wealth from unnecessary taxation.

Final Thoughts

The intersection of estate tax law, retirement accounts, and recent legislative changes has created new challenges—but also opportunities. A Roth conversion could help minimize the long-term tax impact on your estate and your beneficiaries by removing reliance on a deduction that will soon be limited.

Before acting, work closely with your advisors, CPA, and estate attorneys to model potential outcomes based on your income, residency, estate value, and long-term goals. While the right approach depends on each family’s circumstances, understanding and acting on this unique planning window may help preserve a greater portion of your legacy for those you intend to benefit.

Written by Vikram Ganu, Senior Vice President and Director of Tax at Whittier Trust.

If a Roth conversion or accelerated drawdown seems like a potential opportunity for you, let’s start the conversation now. Visit our contact page, and Whittier Trust can help develop a plan that adjusts your tax profile in response to upcoming legislative changes.