Navigating the Tax Torpedo, Roth Conversions, and the OBBA

Chris Reddick | Nov 24, 2025

What is the Tax Torpedo?

The "tax torpedo" is one of retirement planning's most misunderstood phenomena. It refers to the steep effective marginal tax rates that occur when Social Security benefits become taxable due to other retirement income. This creates a zone where retirees can face effective marginal tax rates of 22.2%, 27.75%, or even 40.7% – rates that can torpedo carefully laid retirement plans.

How the Tax Torpedo Works

Social Security benefits become taxable when your "provisional income" exceeds certain thresholds:

Single filers: $25,000 (50% taxable) and $34,000 (85% taxable)
Married filing jointly: $32,000 (50% taxable) and $44,000 (85% taxable)

Provisional income includes your adjusted gross income, tax-free interest, and half of your Social Security benefits. Here's where it gets tricky: for every dollar of additional income in the torpedo zone, you're not only taxed on that dollar but also on an additional $0.50 or $0.85 of previously tax-free Social Security benefits.

Example: Let's say you're a married couple in the 12% tax bracket with provisional income just above $32,000. If you withdraw an extra $1,000 from your traditional 401(k), you'll owe:

12% on the $1,000 withdrawal = $120
12% on an additional $500 of Social Security benefits = $60
Total tax: $180 on a $1,000 withdrawal = 18% effective rate

This effective rate can climb much higher depending on your situation and state taxes.

How the One Big Beautiful Bill Act (OBBA) Changes the Game

The One Big Beautiful Bill Act, signed into law on July 4, 2025, fundamentally reshapes retirement tax planning. This comprehensive legislation made permanent many Tax Cuts and Jobs Act provisions that were set to expire at the end of 2025, including the seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) and the larger standard deduction amounts.

Key OBBA Provisions Affecting Retirement Planning:

Extended Tax Rate Certainty: For tax year 2026, the standard deduction increases to $32,200 for married couples filing jointly, with single taxpayers getting $16,100. This permanency allows for more confident long-term tax planning.

Enhanced Senior Benefits: Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000 ($12,000 for married couples where both qualify), which phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).

Temporary SALT Relief: The law temporarily provides a more generous deduction cap for state and local taxes (SALT), increasing the cap from $10,000 to $40,000 from 2025 to 2029, with income limits starting at $500,000.

These changes create new opportunities and considerations for tax torpedo avoidance and Roth conversion strategies.

Strategic Roth Conversions: Your Torpedo Defense System

Roth conversions are the primary weapon against the tax torpedo. By converting traditional retirement account funds to Roth IRAs during your early retirement years (typically ages 62-72, before RMDs begin), you can:

Benefits of Strategic Roth Conversions:

1. Reduce Future RMDs Every dollar converted is a dollar that won't force you to take RMDs later. Since RMDs often push retirees into higher brackets and torpedo zones, reducing them provides lasting benefits.

2. Create Tax-Free Income Roth withdrawals don't count toward provisional income, meaning they won't trigger Social Security taxation or push you into higher brackets.

3. Fill Up Low Brackets Many early retirees find themselves in unusually low tax brackets. This creates a perfect opportunity for conversions.

Conversion Strategy Framework Under OBBA:

The Bridge Years (Age 62-72): These remain your golden years for conversions, but OBBA creates new considerations:

The permanent tax bracket structure provides planning certainty
The new $6,000 senior deduction (age 65+) effectively lowers your taxable income during key conversion years
Higher standard deductions mean more "room" in lower tax brackets for conversions

OBBA-Enhanced Annual Conversion Planning: Calculate conversions considering:

Standard deduction increases: More conversion capacity in lower brackets
Senior deduction benefit: Additional $6,000-$12,000 of tax-free income for those 65+
SALT cap relief: Temporary increase to $40,000 may affect itemizing decisions and available conversion space
Bracket certainty: Permanent tax rates allow for confident long-term modeling

New Optimal Strategies:

Age 65+ Sweet Spot: The combination of higher standard deductions and the $6,000 senior deduction creates enhanced conversion opportunities
SALT Consideration Window (2025-2029): Higher-income retirees in high-tax states may have different optimal conversion amounts during these years
Bracket Fill Strategy: With permanent brackets, you can confidently "fill up" the 12% bracket knowing it won't change unexpectedly

Real-World Example: The Power of OBBA-Enhanced Planning

Consider "John and Mary," both age 63, retired educators with:

$800,000 in traditional 401(k) accounts
$150,000 in taxable investments
Social Security benefits starting at age 67

Pre-OBBA challenges: Uncertainty about future tax rates and potential torpedo zone exposure.

With OBBA-enhanced strategic Roth conversions:

Ages 63-64 (Pre-Medicare): Convert $45,000 annually, staying comfortably in the 12% bracket with the enhanced standard deduction of $32,200 for 2026.

Ages 65-66 (Senior Deduction Years): Convert $55,000 annually. The combination of the higher standard deduction ($32,200) plus the new $12,000 senior deduction ($6,000 each) provides $44,200 in tax-free income, allowing larger conversions while maintaining the 12% rate.

Results of the OBBA-enhanced strategy:

Pay 12% tax now on $200,000 total conversions over four years
Reduce future RMDs by approximately $8,000 annually
Create $200,000+ in tax-free Roth assets
Benefit from tax certainty thanks to permanent OBBA brackets
Leverage the temporary senior deduction for enhanced conversion capacity

The long-term tax savings often exceed $125,000 over their retirement, with the added benefit of tax rate certainty that OBBA provides.

Implementation Guidelines Under OBBA

1. Start with OBBA-Updated Tax Projections

Model your retirement income incorporating all OBBA changes: permanent tax brackets, enhanced standard deductions, the temporary senior deduction, and revised SALT caps. This creates a more accurate picture of potential torpedo zones.

2. Leverage Enhanced Conversion Capacity

Ages 65+: Take advantage of the $6,000 senior deduction ($12,000 for couples) from 2025-2028. This effectively provides additional conversion "headroom" in lower tax brackets.

Standard Deduction Planning: With higher permanent standard deductions, you may have more room for conversions while staying in preferred tax brackets.

3. Consider Temporary vs. Permanent Provisions

Senior deduction expires 2028: Front-load conversions during ages 65-67 if possible
SALT relief expires 2029: Plan accordingly if you're in a high-tax state
Permanent brackets: Provides confidence for long-term conversion strategies

4. Factor in State Tax Changes

The temporary SALT cap increase to $40,000 may change optimal conversion amounts for residents of high-tax states. Run scenarios both with and without state tax considerations.

5. Plan for Healthcare Costs

Large Roth conversion amounts can still affect Medicare premiums (IRMAA) and ACA subsidies. The senior deduction doesn't offset income for IRMAA calculations, so factor this into your conversion planning.

6. Maintain OBBA-Enhanced Flexibility

Market downturns: Convert more shares for the same tax cost, now with greater certainty about future tax rates
Bracket management: Use the permanent bracket structure to develop multi-year conversion strategies
Senior deduction window: Maximize conversions during the 2025-2028 period if you'll be 65+

Special Considerations for Public Service Professionals Under OBBA

Having worked with educators and public servants throughout my career, OBBA creates unique opportunities for your retirement planning:

Pension income stability: With permanent tax brackets, you can better predict how pension income will interact with your overall tax strategy
403(b) conversions: The enhanced standard deduction and senior deduction provide more conversion capacity from often limited 403(b) options
State pension coordination: The temporary SALT relief (2025-2029) may provide additional tax planning opportunities, particularly for those receiving state pensions
Earlier retirement advantages: Public service retirement systems often allow earlier retirement, creating a longer window to take advantage of the senior deduction starting at age 65
Education-specific benefits: Some educators may benefit from the enhanced charitable deduction for non-itemizers, effective 2026

The OBBA-Enhanced Bottom Line

The One Big Beautiful Bill Act doesn't eliminate the tax torpedo, but it significantly enhances your ability to navigate around it. The combination of permanent tax brackets, enhanced standard deductions, and the temporary senior deduction creates unprecedented opportunities for strategic tax planning.

Through careful Roth conversion planning that leverages OBBA's provisions, you can:

Take advantage of tax rate certainty through 2034 and beyond
Utilize enhanced conversion capacity during your 65+ years (2025-2028)
Plan with confidence knowing the permanent bracket structure
Optimize around temporary provisions like the enhanced SALT deduction

The key is acting strategically during the optimal windows that OBBA creates, particularly the 2025-2028 period when multiple beneficial provisions overlap. Remember, these enhanced opportunities are time-limited in some cases, making prompt action valuable. Reach out to me on the contact page below to learn more about tax planning for retirement.

*The strategies discussed reflect the One Big Beautiful Bill Act as enacted in July 2025 and are for educational purposes. Tax laws are complex and subject to change. Consider consulting with a qualified financial advisor and tax professional before implementing these strategies.

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Navigating the Tax Torpedo, Roth Conversions, and the OBBA