The ‘One Big Beautiful Bill Act’ (OBBBA), signed on July 4, 2025, made current federal tax brackets and rates ‘permanent.’ This legislation maintains the tax structure set by the 2017 Tax Cuts and Jobs Act. However, it's crucial to understand what ‘permanent’ means in tax law.
In Washington, D.C., ‘permanent’ tax laws can be changed at any time, so do not mistake them for lasting guarantees.
History shows the tax code is constantly changing. Since the 16th Amendment in 1913, U.S. tax rates have fluctuated, with a peak of 94% during World War II and a range of 30% to 40% since the 1980s. Each new Congress can pass new laws to reshape taxes.
The OBBBA's ‘permanent’ brackets are only fixed until changed by new legislation—so expect that rates can rise again.
What does this mean for your financial strategy? Seize the moment. Today's low interest rates offer a unique opportunity for tax planning, especially with Roth conversions.
The Roth Conversion Opportunity
A Roth conversion moves pre-tax funds from an IRA or 401(k) to a Roth IRA. You pay income tax on the converted amount that year. The benefit? Money in a Roth IRA grows and is withdrawn tax-free in retirement.
This strategy is particularly powerful right now because you can pay the tax at today's ‘permanent’ low rates. If tax rates rise in the future, as they have throughout history, you will have already paid the tax bill on that portion of your retirement savings. This can provide a valuable hedge against future tax increases.
A Roth conversion may not be right for everyone. It's a decision based on your income, future expectations, and retirement timeline.
The key takeaway: The label ‘permanent’ on tax brackets is misleading. Use today’s rates strategically before they change.
Please reach out to Jacob or me to discuss this topic further. Dixon Financial Group, LLC wants to help you benefit NOW before this ‘permanent’ tax goes away.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
LPL Financial and Dixon Financial Group do not provide tax advice or services.