Why did our 22% marginal tax rate jump to 24.6%?
Posted on July 11, 2025

Many of us over age 65 will pay less total tax in 2025 because of the $6,000 bonus standard deduction, but the 22% marginal tax bracket is now greater than that.

 

Patti and I – both over age 65 – are in the 22% marginal tax bracket. As an example, before the new tax bill, we would have paid $220 in tax on each added $1,000 of income taxed at ordinary rates. Now we will pay $220 but we lose $120 of the bonus standard deduction. That increases our taxable income to $1,120 and the 22% tax is $246.40. Now our effective tax rate on an added $1,000 of ordinary income is 24.64%.

 

It paid to convert Traditional to Roth at 22%, but the 24.6% effective rate erodes the benefit of converting. I won’t convert Traditional to Roth for at least four years: the bonus standard deduction and effective 24.6% tax rate for us expires after the 2028 tax year unless it’s extended with new legislation.

 

Details:

 

== Effective rate greater than 22% ==

 

A single filer over age 65 in the 22% marginal tax bracket will pay 22% on added ordinary income and also lose bonus standard deduction equal to 6% of the added income. The effective tax rate is 23.3%.

 

 

Married, joint filers, both over 65, lose 12% of standard deduction with added income. Their effective tax rate is 24.6%.

 

 

== Implication: I won’t convert to Roth ==

 

The implication for Patti and me – both over 65 – is that converting Traditional IRA to Roth makes little sense.

 

We can never lose after tax dollars by converting at the 22% rate; we’d never pay less than this on a distribution from Traditional. None of our heirs would pay less than 22% on an inherited Traditional IRA. Since tax rates were flattened in 2018, I’ve tried to convert the amount that was taxed no more than 22%.

 

 

The 24.6% rate on conversions weakens the case that we or our heirs will come out ahead after taxes. For example, our heirs, under age 65, would always pay less than 24.6% marginal tax on an inherited Traditional IRA. It makes no sense to convert any of my Traditional IRA to Roth at a greater tax rate tax than they would ever pay on the distribution from an inherited Traditional IRA.

 

 

Conclusion: The $6,000 bonus standard deduction means many of us over age 65 will pay less tax, but it also means the 22% tax bracket is really a greater effective tax rate. Each $1,000, as an example, of added ordinary income is taxed at 22% but you also lose a portion of the bonus standard deduction and the 22% tax benefit on that. A single filer pays an effective tax rate of 23.3% and married, joint filers – both over age 65 – pay an effective tax rate of 24.6%.

 

For those of us over age 65, these higher effective tax rates erodes the incentive and benefit of converting Traditional IRA to Roth.