2025 offers a rare opportunity to “find” thousands of dollars in retirement savings, but only if you act before tax brackets reset. This is a narrow window that may not repeat soon, allowing investors to lock in lower tax rates, set up decades of tax-free growth, and build flexibility into their financial future.
And with U.S. debt levels climbing, it’s a safe bet to assume that tax rates are unlikely to move lower in the years ahead.
Meet Daniel: A Hypothetical Investor
Because everyone’s situation is different, the easiest way to demonstrate the opportunity is to consider a hypothetical investor. This hypothetical example is for illustrative purposes only. Individual results will vary. Consult your tax advisor for personalized advice.
Daniel is 40. His business just had its best year yet, and he expects his taxable income to move him into a higher bracket next year. Today, he sits in the 32% bracket; by 2026, he intends to be in the 35% bracket. He currently has $350,000 in his 401(k) and is considering a Roth conversion in 2025.
The simple math (why timing matters)
If Daniel converts his $350,000 this year at 32%:
- Tax owed now = $112,000 (350,000 × 0.32)
If he waits and converts at 35% later:
- Tax owed later = $122,500 (350,000 × 0.35)
By acting in 2025, Daniel can save $10,500 in immediate taxes. That $10,500 is money that can stay invested and compound tax-free inside a Roth. For someone in a rising-income phase, that immediate saving is helpful.
However, the greater value lies in the tax-free growth on future gains.
Why 2025 Creates the Window
- Tax rates are historically low. Without additional legislation, the top brackets are expected to revert to their previous levels in 2026.
- The One Big Beautiful Bill Act (“OBBBA”) expands deductions, including a higher standard deduction and an expanded SALT cap, both of which create room for conversions.
- Future income matters. Whether you’re moving up from 24% to 32%, or from 32% to 35%, the same principle applies: convert when your rate is lower, not higher.
If you’re considering a Roth conversion in 2025, don’t decide in isolation. This is where guidance from a CPA and financial advisor is essential.
Converting To A Roth? These Are the Five Questions You Need to Ask Your CPA
Daniel, for example, needs to sit down with his CPA and weigh the options: should he convert the entire $350,000 in one year, or spread it out over multiple years to keep from pushing himself into a higher tax bracket? His CPA can model the outcomes, project future tax liability, and recommend the most tax-efficient strategy.
A few important considerations to cover in that conversation:
- Partial conversions: You don’t have to move everything at once. Filling your current bracket without spilling into the next can often be more efficient.
- Cash flow planning: Ensure you can cover the conversion tax with funds outside your retirement account to preserve the principal.
- Income forecasting: Factor in year-end bonuses, business distributions, or other income that could unexpectedly raise your taxable income.
Now, don’t forget the most important step: Plan the post-conversion portfolio. Check out this blog post, where I discuss using Roth space for higher-growth assets, so future appreciation is sheltered from tax.
Converting To a Roth? How to Position It To Grow Strategically
If you’d like to run the numbers on your own situation, I’m here to help. I’m a strong advocate of partnering with your CPA to fully understand how you can capitalize on this window of opportunity. You can schedule a time to speak with me HERE.