What to know before year-end

Key Points:

• Roth IRA conversions, which involve moving pretax or nondeductible IRA funds into a Roth IRA for tax-free growth, have become increasingly popular, with conversions up 41% in early 2026 compared to 2025, according to Fidelity data.
• While Roth conversions can reduce lifetime taxes, especially for those with large pretax retirement balances expecting higher future tax rates, the strategy is complex and not suitable for everyone due to multiple variables like Social Security timing, life expectancy, and legacy goals.
• Tax implications of conversions are significant; increased income from conversions can phase out tax benefits, increase Medicare premiums through IRMAAs, and affect eligibility for deductions under recent tax law changes, such as those from President Trump's "big beautiful bill."
• Individuals enrolled in Affordable Care Act (ACA) marketplace plans should be particularly cautious, as Roth conversions can raise income above thresholds that reduce or eliminate premium tax credits, potentially resulting in full premium payments due to the "ACA cliff."
• Financial advisors recommend thorough analysis of current and future tax impacts before proceeding with Roth conversions, emphasizing the need for personalized planning to ensure the benefits outweigh the costs.