How to Use Roth Conversions and the New Senior Deduction to Lower Your Tax Bill in Retirement

When it comes to smart retirement planning, Roth conversions have always been one of my favorite strategies. But now—with the new $6,000 senior tax deduction starting in 2025—there’s even more opportunity to reduce your tax bill and take control of your financial future. If you’re over 65 and looking for ways to get money out of your traditional IRA or 401(k) with minimal taxes, this may be the best window we’ve seen in years.

Let’s start with the basics. A Roth conversion is when you move money from a pre-tax retirement account like a traditional IRA into a Roth IRA. You pay taxes on the conversion now, but the money grows tax-free from that point forward—and you’ll never owe taxes on qualified withdrawals. There are no income limits to do a Roth conversion, and even high-income earners can use the backdoor Roth strategy, which is still available despite previous congressional threats to eliminate it.

Now, here’s where things get really interesting for retirees. Beginning in tax year 2025, there’s a brand-new $6,000 deduction available for people age 65 and older. Married couples filing jointly can claim $6,000 each—so $12,000 total. And that’s on top of the existing standard deduction and the 65+ bonus deduction. For a married couple over 65, your total deductions in 2025 could hit $46,700: $31,500 standard deduction, $3,200 senior bonus, and $12,000 senior deduction. That’s a huge opportunity to offset taxable income.

But like most things in the tax code, there’s a catch. The new deduction begins to phase out once your income hits $150,000 for married couples ($75,000 for single filers). It disappears completely at $250,000 for couples and $175,000 for singles. For every $1,000 you go over the threshold, you lose $120 of the deduction per couple. That’s why planning your Roth conversions with precision is so important.

Let me walk you through an example. Let’s say Bob and Linda are a retired couple over age 65. Between Social Security and pensions, they bring in $70,000 per year. If they convert $75,000 from their IRA to a Roth, their total income hits $145,000—just under the $150,000 threshold. That means they qualify for the full $12,000 senior deduction. After applying all their deductions, they’ll pay about $11,500 in taxes on a $75,000 conversion. That’s a win.

But what if they get ambitious and convert $120,000 instead? That pushes their income to $190,000—$40,000 over the deduction threshold. Now they lose $4,800 of the senior deduction, meaning they only get $7,200 of the $12,000. Their tax bill jumps significantly. That’s why staying under the phase-out range is key if you want to make the most of this deduction.

Of course, there are situations where going above the threshold might still make sense—especially if you have a very large traditional IRA and want to reduce future required minimum distributions. Congress recently made the lower tax brackets permanent, removing the sunset clause from 2026, but there’s no guarantee things won’t change again. And remember: the senior deduction is temporary—it only lasts from 2025 through 2028. If you’re in a position to convert during those years, it may be worth doing even if you give up part of the deduction.

Roth conversions also help in other ways. By reducing your future adjusted gross income (AGI), you may avoid Medicare IRMAA surcharges, pay less tax on your Social Security benefits, and stay in a lower tax bracket long-term. Managing AGI is about more than just one line on your tax return—it impacts nearly every financial decision in retirement.

The bottom line? 2025 will be a critical year for strategic Roth conversions. If you’re over 65, or nearing it, you’ll want to model different conversion amounts to see how they interact with the new deduction and your long-term tax exposure. You don’t have to convert everything at once. In fact, converting just enough to stay under the phase-out range might be the sweet spot.

This is a great time to run the numbers and plan smart. The tax code is giving us a rare opportunity—but it won’t last forever. Be intentional, balance your short-term tax liability with long-term tax freedom, and use every tool available to make retirement work for you.