3 Retirement Account Takeaways from OBBBA

On July 4, 2025, President Trump signed into law the “One Big Beautiful Bill Act” (OBBBA). This mammoth domestic policy and tax law is hundreds of pages long and will impact many people in all kinds of ways. What does it mean for your retirement account? Here are 3 takeaways:

1. Rothification will continue. While OBBBA does not include any new Roth account provisions, it is likely that in its wake the trend of “Rothification” will continue. The reason is the need for revenue. Many experts believe that the passage of OBBBA will continue the trend of ballooning budget deficits. In the past, Congress has turned to Roth accounts in attempts to plug holes in in the budget. Why? Roth accounts are after-tax accounts and thus provide immediate revenue. For Congress, the future tax-free growth in these accounts is someone else’s problem.

   Back in 2017 during the tax reform debate, a proposal was made to increase revenue by pushing savers towards nondeductible Roth 401(k)s. This trend continued with SECURE 2.0 Act which now allows broader use of Roth-type plan accounts such as Roth SEP and SIMPLE IRA plans, and employer Roth 401(k) contributions. Also, beginning in 2026, 401(k) catch-up contributions must go to Roth 401(k)s when company wages exceed $145,000 in the prior year.

   In the aftermath of OBBBA, expect to see more Roth accounts as Congress grapples with budget and deficit concerns.

2. Conversion opportunities are expanded. For savers who are considering Roth conversions, OBBBA has removed a pending deadline. The 2017 Tax Cuts and Jobs Act’s lower tax rates were scheduled to sunset at the end of 2025. By eliminating this deadline and extending these rates into the future, OBBBA has opened the door to conversions in future years at today’s low tax rates. This changes the calculus for deciding whether to make Roth conversions. Also, OBBBA includes a number of new tax deductions (e.g., SALT, tips and overtime) that can be leveraged to lower the tax bill on a conversion.
3. Planning with tax-advantaged accounts will be more important than ever. Many of the new tax breaks that are part of OBBBA come with income limits. Smart planning with tax-advantaged accounts is one way to reduce income and thus preserve a deduction that otherwise would be lost. For example, a 75 year-old could do a qualified charitable distribution (QCD) from his IRA to both satisfy a required minimum distribution and preserve eligibility for the new extra $6,000 senior deduction. Or, a 25-year-old could make a deductible IRA contribution or health savings account (HSA) contribution and remain eligible for the new tax break on tip income by keeping her income under the phase-out range.

   Tax-advantaged accounts, like IRAs, 401(k)s and HSAs, provide a useful way for many individuals to lower their income, in some cases, even after the tax year is over. In the wake of OBBBA, this will become more valuable than ever.

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3 Retirement Account Takeaways from OBBBA