Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?

The article explains that the OBBBA's permanence of lower individual tax rates removed the one-time urgency for Roth conversions tied to the December 31, 2025 deadline, but it argues retirees still must evaluate conversions annually based on personal projections. Key practical points: watch IRMAA MAGI thresholds (notably $218,000 joint / $109,000 single) which can raise Medicare premiums, recognize RMDs do not preclude conversions, and consider heirs' tax exposure under the 10-year rule; the author recommends converting intentionally in years when an individual’s projected tax rate is lower.

Analysis

Market structure: The OBBBA’s permanency reduces the one-time rush into Roth conversions that drove advisor revenue and conversion-related flows into 2025; winners are fee-based wealth managers and tax-planning software firms (e.g., BLK, TROW, INTU, SCHW) that monetize ongoing planning, while pure-play tax preparers with seasonal revenues (HRB) may see more muted spikes. Custodians (SCHW, IBKR) and IRA-rollover ETFs see lower volatility in AUM re‑allocation but advisory firms with forward-tax projection tools will capture wallet share; expect modest re-pricing of advisory services (2–5% higher recurring fees over 12–24 months). Cross-asset: muted conversion volumes reduce near-term forced selling into equities/bonds but increase demand for tax-aware products — municipal bond ETFs (MUB) and tax-managed equity funds should see relative inflows versus taxable fixed income.

Risk assessment: Tail risks include a political reversal of OBBBA or retroactive tax-law changes (low probability, high impact) and administrative shifts to IRMAA thresholds that could impose surprise premium hikes; these could materialize within 12–36 months around budget cycles. Hidden dependencies: advisor revenue is correlated to client-conversion behavior and market returns — a 10% S&P drop in a window when clients planned conversions can cut conversion taxes paid and advisor revenue by >20%. Catalysts: IRS guidance on MAGI/IRMAA mechanics, mid‑year cost‑of‑living adjustments (COLAs) for 2026 thresholds, and prominent firms rolling out conversion automation.

Trade implications: Direct plays: take a 1–3% tactical long in INTU (tax software) and 2–4% positions in BLK and SCHW to capture recurring planning and custody fee tailwinds over 6–18 months; consider a 6–12 month call spread on INTU around Jan–Mar 2026 tax season (buy 9‑month ATM, sell OTM). Buy short-duration muni ETFs (MUB or HYD short duration equivalents) as 6–24 month insurance against higher demand for tax-free income; avoid long-duration insurers (PRU) if near-term IRMAA-driven behavior increases QCDs vs annuitization. Pair: long BLK (wealth flows) / short HRB (seasonal tax prep) for 6–12 months.

Contrarian angles: The consensus that Roth conversions are "dead" is underdone — selective conversion activity will persist in 20–30% of retiree cohorts (those with MAGI buffers or planning for heirs) and produce predictable seasonal flows each year. Historical parallel: 2018 bracket changes showed front‑loaded but multi‑year conversion behavior; expect similar multi-year, advisor‑led steady flows rather than a single spike. Unintended consequence: widespread conversion avoidance could raise future taxable liabilities and pressure taxable bond markets when large cohorts face RMDs in 5–10 years; this suggests an underpriced long-duration muni/ tax‑efficient equity premium over the next 3–7 years.

Key Decisions for Investors

• For taxable investors and RIAs: advise or execute Roth conversions only up to the IRMAA MAGI breakpoint — for married couples target MAGI <= $218,000 in 2026; convert amount = $218,000 - projected MAGI to avoid IRMAA; reassess each calendar year by Oct 31.
• Establish a 2–4% tactical overweight in INTU (Intuit) and a combined 3–5% exposure to BLK (BlackRock) and SCHW (Schwab) over the next 6–18 months to capture recurring tax-planning and custody fee tailwinds; trim HRB (H&R Block) by 50% relative exposure for 6–12 months.
• Implement a pair trade: long BLK (2%) / short HRB (1.5%) to express secular shift to advisor-driven planning; hold 6–12 months and rebalance if S&P moves >8% or IRS issues new IRMAA guidance.
• Buy a 6–12 month call spread on INTU (buy ATM, sell +20% OTM) sized at 1–2% of portfolio ahead of 2026 tax season to capture elevated tax-software engagement; roll or exit if implied vol rises >30% vs historic 90‑day.
• Allocate 1–3% to short-duration muni ETF exposure (e.g., MUB short-duration slice or SHM) as insurance for rising demand for tax-free income; increase to 3–5% if muni inflows exceed taxable bond inflows by >1.5x over a rolling 3‑month period.