U.S. President Donald Trump signs the sweeping spending and tax legislation, known as the “One Big Beautiful Bill Act,” at the White House in Washington, D.C., U.S., July 4, 2025.
Ken Cedeno | Reuters
Roth individual retirement account conversions have become a popular way for investors to reduce lifetime taxes. But for some high earners, the strategy could hurt eligibility for the state and local tax deduction, known as SALT.
President Donald Trump’s “big beautiful bill” temporarily increased the SALT deduction cap from $10,000 to $40,000 starting in 2025. The limit increases by 1% yearly through 2029 and reverts to $10,000 in 2030.
Roth conversions transfer pretax or nondeductible IRA funds to a Roth IRA, which kickstarts future tax-free growth. The trade-off is incurring regular income during the year of conversion.
Extra income can impact tax breaks — including the $40,000 SALT cap — due to phaseouts, or benefit reductions, once earnings exceed certain thresholds, experts say.
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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.
That creates what some tax experts are calling a “SALT torpedo,” or artificially higher tax rate of 45.5%, between those earnings thresholds.
If you’re making Roth conversions with income near that range, the phaseout could create a “tax bomb,” said certified financial planner Kevin Brady, senior vice president at Wealthspire Advisors in New York.
How the SALT deduction works
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.
However, the vast majority of filers — roughly 90%, according to the latest IRS data — use the standard deduction and don’t benefit from itemized tax breaks.
Raising the SALT deduction cap is expected to primarily benefit higher earners, according to a May analysis from the Tax Foundation.
The change “helps some high-tax-state clients, but it also phases out at higher incomes,” said Jared Gagne, a CFP with Claro Advisors in Boston.
There are several factors to consider when making Roth conversions, including long-term financial and legacy planning goals, experts say.
When making Roth conversions, Gagne weighs clients’ current tax brackets and other deduction phaseouts. He also considers income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums, along with the earnings thresholds for net investment income tax.
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.
