Your IRA’s Final Sale Starts Next Year

If you’ve ever looked at next year’s tax tables and thought, “That’s going to hurt,” you’re not alone. Many retirees are quietly bracing for January 1, 2026—the day today’s lower tax brackets expire and rates snap back to pre-2018 levels. The good news? 2025 gives you one last, legal way to “buy taxes on sale.” It’s called a Roth conversion, and done wisely, it can fortify your nest egg against future tax hikes, Medicare surcharges, and even the financial strain left to a surviving spouse.

WHY 2025 IS A TAX “CLEARANCE SALE”

Think of your favorite coffee shop posting a notice: Prices jump next year, but gift cards bought now still brew tomorrow’s lattes. A year-end Roth conversion works the same way—you pre-pay tax while rates are low and drink tax-free income for life.

Here’s what changes after 12/31/25:

• The 12 % bracket becomes 15 %; 22 % → 25 %; 24 % → 28 %; 37 % → 39.6 %.

• Each bracket narrows, so more of every dollar is pushed into higher rates sooner.

• The standard deduction is roughly cut in half, personal exemptions return (but phase out), and the dreaded marriage penalty comes back.

In plain dollars: for married filers, the current 12 % bracket ends at about $97,000. In 2026, that first bump to 15 % may hit at roughly $24,000. That’s not a typo.

THE PAY-NOW, SAVE-LATER STRATEGY

A Roth conversion moves money from your traditional IRA to a Roth IRA. You pay today’s tax once, then enjoy tax-free growth and withdrawals forever—no Required Minimum Distributions (RMDs), no tax surprise for heirs.

Benefits of converting in 2025

• Save 3–4 percentage points of federal tax on the same dollars compared with 2026.

• Smaller future RMDs can lower Medicare Part B & D premiums (those IRMAA surcharges).

• Protect a surviving spouse from the “widow’s penalty” of single-filing brackets.

Trade-offs to keep in mind

• A large conversion boosts your 2025 Adjusted Gross Income, which Medicare uses two years later. Worst-case IRMAA hit: about $5,000 per couple—for one year.

• Conversions are irrevocable. Planning and precision matter.

• State income tax is due immediately; high-tax residents may want a workaround (see below).

HOW MUCH SHOULD YOU CONVERT?

1. Bracket-Fill Method 
   Calculate how much room you have left in the 22 % or 24 % bracket and fill only that space.

2. Two-Shot Split
   Convert half in 2024, half in 2025. You still beat the deadline but soften the Medicare ripple.

3. Charitable Offset
   Planning a larger gift? Fund a Donor-Advised Fund in the same year. The deduction can offset the conversion income.

4. Snow-Bird Timing
   If you’re contemplating a move to Florida, Texas, or another no-income-tax state, establishing residency before converting could save thousands.

YOUR MID-YEAR 2025 CHECKLIST

(Clip or print this for your planner.)

□ July 2025: Update your income forecast. Subtract it from the 24 % bracket ceiling ($394,600 married; $197,300 single, in today’s dollars) to find your “discount space.”
□ Set an IRMAA comfort zone. If your Modified AGI after conversion stays under $333,000 (married, 2025 numbers), the 2027 Medicare premium bump is capped at about $2,600 per person.
□ Schedule the conversion with your custodian and make a same-day electronic tax payment or boost Q4 estimates—no under-withholding surprises.
□ Re-run the math every fall. If Congress extends lower brackets (it’s happened before) you can always throttle back future conversions—but you can’t get 2025 back.

A QUICK REAL-WORLD EXAMPLE

Linda and Mike, both 66, expect $120,000 of taxable income in 2025—currently near the middle of the 22 % bracket. They convert $80,000, keeping their last dollar under the 24 % ceiling. Tax cost: about $17,600 federal. If they waited until 2026, the same $80,000 would face a 25 % rate ($20,000) or even 28 % once bracket compression occurs—an extra $2,400-4,400 they’ll never recover. Plus, all future growth on that $80K is now tax-free.

IS THIS RIGHT FOR YOU?

A final-year Roth conversion isn’t one-size-fits-all. It shines brightest for:

• Retirees with large traditional IRAs and moderate current-year income.

• Couples worried about rising RMDs or the single-filer tax hit later in life.

• Anyone who believes tax rates are more likely to rise than fall over the next 20 years.

If that sounds like you, mark July 2025 on your calendar now and start the homework early with your tax professional. A little prep in the next 18 months could translate into decades of lower taxes and higher peace of mind.

We hope this breakdown of 2025 Roth conversions brought clarity to a complex—but time-sensitive—decision. Our mission is to keep you informed and in control.

Thank you for being part of our community and for taking your financial future seriously.

– The Mid-Week Deep Dive Team