Before the election, some advisors increased Roth individual retirement account conversions for clients amid the threat of higher taxes after 2025.

Now, tax hikes are less likely under President-elect Donald Trump. However, demand for Roth conversions will continue as investors seek long-term tax planning strategies, experts said.

“In general, we see an uptick in Roth conversions at the end of the year and into the new year ahead of the tax filing deadline in April, and we expect to see these trends again in 2025,” said Rita Assaf, vice president of retirement offerings at Fidelity Investments.  

Fidelity saw a 45% year-over-year increase in the volume of Roth conversions as of July, Assaf said.

But while Roth conversions are on the rise, many investors are still learning about the strategy.

“I think you are only going to see an increase in Roth IRA conversions,” said certified financial planner Byrke Sestok, a partner at Moneco Advisors in Harrison, New York. 

“The percentage of people who know about the benefits of Roth IRA conversions is still low,” he said. “The number of people who actually execute a conversion is even lower.”

Roth conversions shift pretax or nondeductible IRA funds to a Roth IRA, which can jump-start tax-free growth. The trade-off is paying regular income taxes on the converted balance.

With Trump’s 2017 tax cuts scheduled to expire after 2025, including lower federal income tax brackets, some advisors have accelerated Roth conversions for their clients to leverage the lower tax rates through 2025.

However, Trump has vowed to extend his 2017 tax breaks, which would keep lower tax brackets intact. That plan could be easier if Republicans control the White House, Senate and House of Representatives.

Even without tax increases from Congress, experts said, Roth conversions can reduce long-term taxes on your portfolio, particularly for older workers and retirees with sizable pretax balances.

However, whether Roth conversions make sense depends on your “unique financial situation,” Assaf said.

Advisors often complete Roth conversions in lower-income years, such as early retirement before claiming Social Security benefits or taking required minimum distributions. The strategy can minimize the upfront tax bill while reducing your pretax balance.

Currently, you may consider “filling up the 12% and 24% tax brackets” with income triggered by a Roth conversion because there’s a big jump to the next tier, Sestok said.

However, it’s important to run a complete tax projection, including all other sources of income, before executing the strategy, tax experts say.

Each bracket is based on “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income. The taxable income thresholds will increase in 2025.

Investors have been able to get the best returns on cash, as the Federal Reserve raised interest rates to bring down the pace of inflation.

Now that the central bank is lowering rates — with a new quarter point rate cut announced by the Fed on Thursday — experts say having money in cash can still be a competitive strategy.

“The best yields, whether we’re looking at high yield savings accounts, money markets or CDs [certificates of deposit] are well ahead of inflation, and that’s likely to continue for a while,” said Greg McBride, chief financial analyst at Bankrate.

“Rates are coming down, but cash is still a pretty good place to be,” he said.

Yet just how much cash to set aside is a question every individual investor needs to determine.

Earlier this year, Callie Cox, chief market strategist at Ritholtz Wealth Management, warned investors may be holding too much cash. That may still be true today, she said Thursday.

“If you’re sitting in cash because the environment doesn’t feel right, then that’s probably not a good reason to be sitting in cash,” Cox said.

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If you have cash on the sidelines that you want to put into the market, it can make sense to add a fixed portion of that money over time, say every month — a strategy called dollar-cost averaging, Colley said.

Having that fixed schedule can help you avoid trying to time the market, which can be difficult to do effectively, she said. Importantly, investors should try to opt for broadly diversified funds rather than individual stocks.

Having a long-term view can pay off.

If you had invested all of your money before the financial crisis, it would have felt like the worst timing in the entire world, Colley said.

Now, your returns look great, provided you let that money grow for the 15-year run, she said.

Most Americans will have a lower tax burden in retirement than during their working years.

However, that may not be the case for some retirees, especially for higher earners and big savers, which could have a significant impact on their financial plans, according to financial advisors.

“Substantial evidence” suggests retirees have lower tax rates than during their working years, according to a 2024 paper published by the Center for Retirement Research at Boston College.

There are a few general reasons for this, according to a joint 2017 research paper by the Internal Revenue Service and Investment Company Institute: People who leave the workforce no longer pay payroll taxes. Their household income often drops, generally meaning less income is taxed. And Social Security recipients only pay tax on a portion of their benefits.

The “overwhelming majority” of people will have a lower tax rate in retirement, “hands down,” said Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis and chief planning officer at Buckingham Wealth Partners.

But that’s not always the case.

Those who’ve built up a sizable nest egg, perhaps with disciplined saving in a 401(k) plan or individual retirement accounts, may have large required minimum distributions, Levine said.

For example, the IRS requires that older investors take minimum withdrawals annually from “traditional” (i.e., pre-tax) retirement accounts when they reach a certain age. (It’s age 73 for those who turned 72 after Dec. 31, 2022.)

The total amount is based on an IRS formula. A bigger nest egg generally corresponds to a larger RMD.

This matters because RMDs from pre-tax accounts add to a household’s taxable income, thereby raising its total tax bill. By contrast, distributions from Roth accounts aren’t taxable, with some exceptions.

Investors held $11.4 trillion in traditional IRAs in 2023, about eight times more than the $1.4 trillion in Roth IRAs, according to the Investment Company Institute.

Additionally, investors who inherited a retirement account, perhaps from a parent, may have to empty the account within 10 years of the owner’s death, Levine said. Such withdrawals from a pre-tax account would further add to taxable income.  

In such cases, their taxable income may exceed that of their working years, said Jenkin, a member of the CNBC Financial Advisor Council.

“Most clients we sit down with today don’t want to see a diminished amount of income when they retire,” Jenkin said. “They still want to take the same level of trips, level of going out to concerts and dining, taking care of grandchildren, and many are still carrying a mortgage into retirement.”

In the first three to five years of retirement, Jenkin actually finds clients generally spend more than they do during their working years due to what he calls “a period of jubilation.”

“A lot of people just don’t want to shrink their lifestyle,” he said.

Congress may change the tax code, for example. To that point, there’s tax fight looming next year that could impact things like the size of the standard deduction and marginal income-tax rates.

That said, even if Congress were to increase the marginal income-tax brackets in the future, most retirees would likely still see their “personal tax rates” fall versus their working years, Levine said.