Should You Do a Roth Conversion or Harvest Capital Gains First in 2026?

Written by Dan PasconeSeptember 28, 2026

Piggy bank and coin jar balanced on a wooden seesaw, with notebook and calculator on a desk

A Roth conversion and 0% capital gains harvesting draw from the exact same pool of low tax bracket space, so every extra dollar you convert pushes your tax-free capital gains room down by that same dollar.

For 2026, a couple 65 or older can pull $47,500 of ordinary income from a traditional IRA with zero federal tax, using the standard deduction, the 65-plus addition, and the new senior deduction.
Once that $47,500 is used, capital gains stack on top of it tax-free up to just under $98,900, for roughly $146,000 of zero-tax income in a single year.
The two strategies compete for the same space above that floor, and which one should get the extra room usually comes down to what each account costs someone the day it's inherited.

The Income Valley: Your Most Valuable Planning Window

After your paycheck stops but before Social Security and required minimum distributions start, you hit what we call the income valley. The only taxable income you have in those years is whatever you choose to create.

That gap is valuable because your deductions are still sitting there, unused, waiting for income to offset them. For 2026, a married couple who are both 65 or older gets $32,200 as a standard deduction, another $3,300 combined for being 65 or older ($1,650 per spouse), and up to $12,000 combined from the new senior deduction, which phases out once household income crosses $150,000. Stack those together and a couple can pull $47,500 of ordinary income from a traditional IRA each year and pay zero federal tax on it. If you're not already doing this every year, it's free money. We cover the mechanics of this window in more detail in When Does a Roth Conversion Actually Make Sense? Find Your Tax Window.

The Two Strategies Fighting for the Same Space

Once that $47,500 is used up, ordinary income for the year is exactly zero. And when ordinary income is zero, capital gains stack on top of it completely untouched, up to just under $98,900 for a couple in 2026. So a couple with an appreciated brokerage account can harvest close to $98,900 of gains and owe nothing on those either.

Add it up and a retired couple has roughly $146,000 of income in a single year that costs zero in federal tax. Most advice on this topic stops right there: claim the floor, harvest the gains, done.

Prefer to watch this one? Here's the full breakdown:

What Most People Miss

Nearly every piece of content on this topic treats Roth conversions and capital gains harvesting as two separate strategies competing for your attention. They're not separate. They're fighting over the exact same piece of real estate in the tax code, and spending that space on one leaves less of it for the other. The moment you pull more than $47,500 of ordinary income, say by doing a Roth conversion on top of that withdrawal, every extra dollar of conversion pushes the 0 percent capital gains ceiling down by exactly that much. Convert an extra $30,000, and you've just turned $30,000 of what used to be 0 percent capital gains room into 15 percent capital gains instead. Once you see the $47,500 floor and the $98,900 ceiling as one shared ladder instead of two independent tactics, the real question changes from "should I convert or should I harvest" to "how much of this shared space do I want to spend on each one this year."

Which Strategy Should Get the Extra Room?

Here's how we think about answering it. Ask what happens to each account if it's never touched again and gets passed to the kids. A brokerage account gets a full step-up in basis at death. Every dollar of embedded gains sitting in it disappears for tax purposes the day it's inherited. A traditional IRA gets no such treatment. Every dollar in it is still fully taxable to whoever inherits it, and under current law they usually have to empty the account within 10 years, often during their own peak earning years.

Spend the low bracket room harvesting capital gains that were never going to be taxed anyway, and cheap bracket space just solved a problem that was going to solve itself. Spend that same room converting IRA dollars to Roth instead, and a balance with no good way out gets permanently smaller, at 10 or 12 percent federal rates instead of the 32 or 35 percent your kids would pay on it later. For most households with a large pretax balance, the free $47,500 floor gets claimed every year without debate, but the room above it usually leans toward conversions first and gains harvesting second, unless there's a specific reason to diversify. We walked through this exact tradeoff, using the same 2026 bracket numbers, in Why Retiring Earlier Might Actually Leave You Richer.

A Client Example: Mark and Alina's 10-Year Plan

Take Mark and Alina (not their real names), both 63 and recently retired. Mark spent 30 years in a senior operating role and rolled just over $4.2 million into an IRA when he left. Alina still holds a large position in her former employer's stock from years of RSU grants, worth about $1.8 million in a taxable account, most of it embedded gain.

They were nervous about two things: the size of the required distributions waiting for Mark at 75, and the fact that Alina's concentrated stock position needed to come down over time regardless of the tax picture. Instead of picking one strategy, here's what we built for them. Every year, they pull $47,500 straight from Mark's IRA completely tax-free. Then, instead of stopping there and harvesting the rest of their available room in capital gains, they use most of the remaining space up to the top of the 12 percent bracket ($100,800 for 2026) to convert additional IRA dollars to Roth. They only harvest capital gains beyond that point when there's an actual reason to trim the concentrated stock position, not simply because the rate happens to be low that year.

The result is Mark's IRA shrinking every year at a federal rate of 10 or 12 percent, instead of waiting to be forced out later at whatever bracket the required distributions push them into. See a similar case worked in full in Converting $3 Million to Roth IRA in One Year: Genius or Mistake?

Guardrails Before You Try This Yourself

A few things are worth knowing before building this on your own. This is federal planning, and your state may tax this income differently, so don't assume zero federal tax means zero tax at all.

If Social Security hasn't started yet, this whole structure works best before those benefits begin, because once they do, up to 85 percent of them can become taxable and stacks underneath everything discussed here. And if you're retired before 65 and relying on marketplace health coverage, both a large Roth conversion and a large capital gains harvest raise your income for that purpose, so it's worth checking the premium impact before executing either one. The years between leaving corporate work and RMDs at 73 are the best tax control window most people ever get. Retire at 48 vs. 56 vs. 60: The Math They Don't Show You walks through why that window matters even before you get to the income valley.

Who This Is For

This is written for recently retired or soon-to-retire executives, roughly 55 to 65, sitting on a large pretax IRA or 401(k) balance, a taxable brokerage account with real embedded gains, or both, and who are in or approaching the years between leaving corporate work and required minimum distributions. If you've heard the Roth conversion advice and the capital gains harvesting advice separately and want to know how to split the same tax bracket space between them, this is the exact problem we solve.

Frequently asked questions

What is the "income valley" in retirement tax planning?

The income valley is the stretch between the year you stop earning a paycheck and the year Social Security and required minimum distributions begin. During those years, your taxable income is entirely a choice rather than a given, which makes it the best window to fill cheap tax brackets on purpose with Roth conversions or capital gains.

Can I do a Roth conversion and harvest capital gains in the same year?

Yes, but they share the same limited space. Ordinary income from a Roth conversion fills in first, and capital gains stack on top of it. Converting more reduces how much capital gains room is left to harvest at 0 percent that year, so the two moves have to be planned together, not separately.

How much ordinary income can a retired couple have with zero federal tax in 2026?

For a married couple both 65 or older, the standard deduction, the 65-plus addition, and the new senior deduction combine to roughly $47,500 of ordinary income at zero federal tax in 2026, before any capital gains are added on top.

Does a Roth conversion reduce my 0% capital gains room?

Yes, dollar for dollar. Capital gains stack on top of ordinary income, so every additional dollar of Roth conversion income above the ordinary income floor pushes that same dollar of capital gains out of the 0 percent bracket and into the 15 percent bracket instead.

Should I prioritize Roth conversions or capital gains harvesting?

It depends on what each account would cost someone if left untouched. A brokerage account gets a step-up in basis at death, so its embedded gains disappear for tax purposes when inherited. A traditional IRA doesn't get that treatment, and heirs usually must empty it within 10 years. For many households, that makes Roth conversions the better use of the shared bracket space once the free ordinary income floor is claimed, though the right split depends on your own accounts and goals, which is exactly what Tailored Wealth works through on a Free Wealth Strategy Call.

How do I figure out my own split between the two strategies?

There's no universal ratio. It depends on the size of your pretax balance, your embedded capital gains, your state tax exposure, and whether you'll need to trim a concentrated stock position for reasons beyond taxes. Multi-year tax projections that model your specific accounts side by side, which is the kind of planning Tailored Wealth builds for clients, are what actually answer the question instead of a rule of thumb.

Same income floor, same capital gains ceiling, very different outcomes depending on how you split the space between them. If you're sitting on a seven-figure IRA, a taxable account with real embedded gains, or both, this is exactly the kind of decision where the order you do things in is worth more than either strategy on its own. Book a Free Wealth Strategy Call and we'll map your income valley using your actual numbers instead of a rule of thumb.

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