Roth Conversions and Capital Gains Strategies for Wealthy Retirees Under the OBBB: Maximizing Tax Efficiency

The One Big Beautiful Bill Act of 2025 (OBBBA) has fundamentally reshaped the tax landscape for wealthy retirees, offering a narrow window (2025–2028) to optimize tax efficiency through strategic asset allocation and timing. By leveraging temporary increases in deductions, understanding phasedown thresholds, and planning for future reversions, retirees can minimize lifetime tax exposure and enhance intergenerational wealth transfers. Here's how to capitalize on the changes.

Roth Conversions: Timing is Everything

The OBBBA's temporary expansion of the SALT deduction and introduction of a senior deduction (up to $12,000 for joint filers over 65) create an ideal environment for Roth conversions. These deductions reduce taxable income, lowering the effective marginal tax rate on converted amounts. For example, a couple earning $400,000 in 2025 with $30,000 in state taxes can deduct the full $30,000 under the $40,000 cap, preserving their eligibility for the senior deduction. Converting $500,000 from a traditional IRA to a Roth IRA in this scenario could lock in a 22% tax rate instead of facing higher rates later due to RMDs or phasedown rules.

Actionable Step: Calculate your MAGI (Modified Adjusted Gross Income) to ensure conversions don't push you into the phasedown zone ($500,000+). Use the SALT deduction and senior deduction to stay below this threshold.

Capital Gains: Navigating Marginal Rates

The phasedown of the SALT deduction for MAGI above $500,000 creates a “cliff” effect, where marginal tax rates surge as income approaches $600,000. Wealthy retirees should time the realization of capital gains to avoid crossing this threshold. For instance, a couple with $580,000 in MAGI in 2025 faces an effective marginal rate of 45.5% due to the phasedown. Delaying gains until income drops below $500,000 could reduce the tax burden by over 20 percentage points.

Actionable Step: Use tax-loss harvesting in high-income years to offset gains, and consider holding appreciated assets until post-2028, when the SALT deduction reverts to $10,000.

Charitable Giving: Bunching to Maximize Benefits

Starting in 2026, only charitable contributions exceeding 0.5% of AGI qualify for itemized deductions. Retirees must “bunch” donations into alternating years to exceed this floor. For example, a donor with $1 million AGI could deduct $50,000 in a single year (0.5% of AGI) but must give at least $50,001 to qualify. Using donor-advised funds allows contributions to be made in high-deduction years while spreading grants over multiple years.

Actionable Step: Front-load charitable contributions in 2026 and 2027 to create large deductions, then take the standard deduction in even years.

Long-Term Planning and Legacy Considerations

The SALT deduction's return to $10,000 in 2030 introduces uncertainty. Retirees should accelerate wealth transfers before this deadline. For instance, gifting appreciated assets (held for over a year) to heirs now locks in current basis rules, avoiding stepped-up basis under the OBBBA. Additionally, trusts can shield assets from future tax regimes.

Actionable Step: Use annual exclusion gifts ($18,000 per recipient in 2025) to transfer wealth tax-free, paired with Roth conversions to reduce taxable estates.

Conclusion

The OBBBA's 2025–2028 window offers a rare opportunity to optimize tax outcomes through strategic Roth conversions, capital gains timing, and charitable planning. Retirees must act swiftly to exploit the higher SALT and senior deductions, avoid phasedown cliffs, and position themselves for post-2030 uncertainty. By aligning these strategies with their financial goals, they can secure long-term tax efficiency and minimize intergenerational wealth transfer costs.

The next few years will define the tax legacy of today's retirees. Seize this window.