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U.S. President Donald Trump signs the sweeping spending and tax legislation, known as the \u201cOne Big Beautiful Bill Act,\u201d at the White House in Washington, D.C., U.S., July 4, 2025. <\/p>\n
Ken Cedeno | Reuters<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Roth individual retirement account conversions have become a popular way for investors to reduce lifetime taxes<\/a>. But for some high earners, the strategy could hurt eligibility for the state and local tax deduction<\/a>, known as SALT.<\/p>\n President Donald Trump<\/a>\u2018s \u201cbig beautiful bill\u201d<\/a> temporarily increased the SALT deduction cap<\/a> from $10,000 to $40,000 starting in 2025. The limit increases by 1% yearly through 2029 and reverts to $10,000 in 2030.<\/p>\n Roth conversions transfer pretax or nondeductible IRA<\/a> funds to a Roth IRA, which kickstarts future tax-free growth. The trade-off is incurring regular income<\/a> during the year of conversion.<\/p>\n Extra income can impact tax breaks \u2014 including the $40,000 SALT cap \u2014 due to phaseouts, or benefit reductions, once earnings exceed certain thresholds, experts say.<\/p>\n More from Personal Finance:<\/strong> The $40,000 SALT deduction limit starts to decrease once modified adjusted gross income exceeds $500,000, and phases out completely to $10,000 when MAGI reaches $600,000.<\/p>\n That creates what some tax experts are calling a \u201cSALT torpedo,\u201d<\/a> or artificially higher tax rate of 45.5%, between those earnings thresholds.<\/p>\n If you\u2019re making Roth conversions with income near that range, the phaseout could create a \u201ctax bomb,\u201d said certified financial planner Kevin Brady, senior vice president at Wealthspire Advisors in New York.<\/p>\n<\/div>\n Taxpayers claim the greater of the standard deduction or itemized tax breaks on returns every year. If you itemize, you can claim up to $40,000 for SALT in 2025, which includes state and local income and property taxes. <\/p>\n However, the vast majority of filers \u2014\u00a0roughly 90%<\/a>, according to the latest IRS data \u2014 use the standard deduction and don\u2019t benefit from itemized tax breaks.<\/p>\n Raising the SALT deduction cap is expected to primarily benefit higher earners<\/a>, according to a May analysis from the Tax Foundation.\u00a0<\/p>\n The change \u201chelps some high-tax-state clients, but it also phases out at higher incomes,\u201d said Jared Gagne, a CFP with Claro Advisors in Boston.<\/p>\n<\/div>\n There are several factors to consider when making Roth conversions, including long-term financial and legacy planning goals, experts say.<\/p>\n When making Roth conversions, Gagne weighs clients\u2019 current tax brackets and other deduction phaseouts. He also considers income-related monthly adjustment amounts, or IRMAA, for Medicare Part B<\/a> and Part D premiums, along with the earnings thresholds for net investment income tax<\/a>.\u00a0<\/p>\n Plus, the goal of Roth conversions is to reduce your lifetime taxes. In many cases, advisors run multi-year projections to decide whether it makes sense to forgo a current-year tax break to secure long-term tax-free growth.\u00a0<\/p>\n<\/div>\n
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Trump to \u2018prevent benefits\u2019 for some under Public Service Loan Forgiveness<\/a><\/p>\nHow the SALT deduction works<\/h2>\n