Why Future Tax Rates Matter Less Than You Think
- 6 days ago
- 6 min read
By Kenneth M. Ford, AWMA®, AIF®
Last Updated: July 2026
Estimated Reading Time: 7–8 minutes
Quick Answer
You do not need to predict future tax rates for a Roth conversion to make sense.
The 2025 tax “sunset” never happened — the One Big Beautiful Bill Act made the current brackets permanent, so the seven rates (10, 12, 22, 24, 32, 35, and 37 percent) are no longer scheduled to expire. The deadline that drove much of the recent urgency is gone.
What replaces it is a better reason. A conversion works when the rate you’d pay today is at or below the rate you’d pay later — a comparison about your return, not about Congress.
And the most durable rationale isn’t a rate forecast at all. It’s control: holding wealth across pre-tax, Roth, and taxable accounts so that, year by year, you decide how much taxable income to recognize. That control pays off whether rates rise, fall, or stay exactly where they are.
Why This Matters
Almost every argument you’ll read for a Roth conversion rests on a prediction: rates are going up, so act now.
It’s a seductive argument. It’s also unnecessary — and if it’s the only reason you’re converting, your plan rests on a forecast you cannot verify.
Why Future Tax Rates Aren't the Real Question
For several years, the message to affluent savers was urgent and specific: convert before the 2017 tax cuts expire at the end of 2025.
That deadline is gone. In July 2025, the One Big Beautiful Bill Act made the individual brackets permanent. The feared snap-back to a 39.6% top rate will not occur on that timeline.
If your conversion plan was built on beating that clock, it needs rebuilding on a firmer foundation.
“Permanent” Carries an Asterisk
Permanent, in tax policy, means until Congress changes its mind.
Today’s top rate of 37% is low by historical standards — since 1913, the top federal rate has averaged closer to 60% — and persistent deficits make future increases plausible.
But history also cautions against overreaction. Even in the eras of 70% and 90% headline rates, the highest earners actually paid an effective rate near 22%. The frightening number was rarely the real one.
So the lesson is not “rates will skyrocket, convert everything.” It’s something more useful, and more precise.
The Only Comparison That Matters
Strip everything away and a conversion reduces to a single comparison:
Convert dollars when the rate you would pay today is at or below the rate you would pay later. Leave them alone when it isn’t.
Note what is not in that sentence: tax-free growth.
The compounding inside a Roth is a genuine benefit, but it is not the reason a conversion works. If your rate were identical today and in the future, a traditional IRA and a Roth would leave you with exactly the same after-tax wealth — regardless of how much the account grew or how long you held it.
The entire advantage comes from the difference between your rate now and your rate later. Growth and time amplify a favorable rate gap. They do not create one.
Which means the governing question was never “are taxes going up?” It is far more specific:
What will my rate be on these particular dollars, in the year I would otherwise withdraw them?
That’s a question about your return — and it’s answerable.
The Reason That Survives Any Forecast
Here is the argument that doesn’t depend on being right about rates at all.
The durable case for a Roth isn’t a prediction. It’s control.
Holding wealth across three buckets — pre-tax, Roth, and taxable — means that year by year in retirement, you decide how much taxable income to recognize.
That control is what lets you:
• Duck beneath an IRMAA threshold in the year it matters
• Stay out of the Social Security taxation band
• Keep long-term capital gains inside the 0% bracket
• Absorb a large medical expense or one-off need without a bracket spike
• Give a surviving spouse room to maneuver when they’re suddenly filing single
Diversification of taxation is the rarest form of diversification — and the most overlooked. It pays off whether rates rise, fall, or hold steady.
Advisor Insight
We’re wary of any conversion pitch that leads with a rate forecast, because the forecast is doing work that the arithmetic should be doing.
Nobody knows what Congress will do. We certainly don’t.
What we can know, with reasonable confidence, is what a client’s income will look like at 68 versus 75 — because RMDs, Social Security timing, and pension income are all largely knowable. That comparison is where the decision actually lives.
If you’re converting because someone told you rates are going up, ask them a different question: what will my rate be in the year I’d otherwise withdraw these dollars? If they can’t answer that, they haven’t done the work.
Example
James and Elaine, both 64, retired two years ago. Their current taxable income is roughly $55,000. They plan to begin Social Security at 70, and RMDs will begin at 73 on a combined pre-tax balance of $1.6 million.
They’re anxious about future tax rates and want to convert aggressively now.
Their advisor reframes the question. Rather than forecasting Congress, he projects their income:
• Today (64–69): roughly $55,000. They’re in the 12%–22% range with meaningful room to convert.
• At 73+: Social Security plus RMDs on a balance that will have grown to
roughly $2.4 million. Their projected income lands them firmly in the 24% bracket and near an IRMAA threshold.
The rate gap is real, and it’s knowable — without any prediction about future legislation. They convert into the space beneath the 22% and 24% thresholds during the window, and stop before crossing the cliffs.
If rates rise later, they look even smarter. If rates stay flat, the plan still works. That’s the point.
Hypothetical illustration. Not a prediction, recommendation, or guarantee. Individual circumstances vary.
Common Mistakes
Converting because of a rate forecast. Forecasts are not a plan.
Believing the 2025 deadline still applies. It doesn’t. OBBBA made the brackets permanent.
Assuming tax-free growth is the reason conversions work. It isn’t — the rate differential is.
Treating “permanent” as forever. It means “until Congress changes its mind.”
Ignoring the control argument. Tax diversification pays off in every rate environment.
Frequently Asked Questions
Did the 2025 tax sunset really not happen? Correct. The One Big Beautiful Bill Act made the individual brackets from the 2017 law permanent. They are no longer scheduled to expire.
So is there still a reason to convert? Yes — but it’s the arithmetic of your own rate now versus later, plus the value of tax diversification. Not a deadline.
If rates might go up, shouldn’t I convert everything? No. Over-converting is a real error. The right amount depends on your true marginal rate, and it’s frequently smaller than people expect.
Isn’t tax-free growth the main benefit? It’s a real benefit, but it is not the reason a conversion works. If your rate were the same today and later, the two accounts would produce identical after-tax wealth.
What if I’m wrong about my future rate? That’s precisely why tax diversification matters. Holding all three account types means you have flexibility regardless of what happens.
Key Takeaways
• The 2025 deadline is gone — OBBBA made the current brackets permanent.
• A conversion works when today’s rate ≤ tomorrow’s rate. That’s a question about your return, not about Congress.
• Tax-free growth is not the reason conversions work. The rate differential is.
• The durable rationale is control — the ability to decide, each year, how much income to recognize.
• Tax diversification pays off whether rates rise, fall, or stay flat.
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Final Thoughts
The 2025 deadline is gone—and that's a good thing. Roth conversion decisions were never meant to be driven by an artificial deadline.
What replaces it is better: a patient, multi-year exercise in moving money out of the pre-tax bucket in the specific years your rate is lowest — and stopping short of the cliffs that would make it expensive.
Both over-converting and under-converting are genuine errors. The right annual amount is governed by your true marginal rate. And it’s a different number every year.
Focus on What You Can Control
No one knows what future tax rates will be. What you can know is how your retirement income, Required Minimum Distributions, Medicare premiums, and other factors may affect your own tax situation over time.
A Roth Conversion Analysis can help you evaluate your opportunities based on your financial picture—not predictions about future tax law.
Disclaimer
This article is for educational purposes only and should not be considered tax, legal, or investment advice. Roth conversions, Medicare premiums, IRMAA surcharges, required minimum distributions, and retirement income strategies should be evaluated based on your individual circumstances, including your income sources, tax situation, retirement goals, and broader financial plan. All examples are hypothetical, are provided for illustration only, and are not a guarantee or prediction of any particular result; individual results will vary. Figures reflect 2026 federal parameters and are subject to change. Tax laws, Medicare rules, premium amounts, and IRMAA thresholds change over time. Consult qualified tax and financial professionals before making financial decisions.
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