Roth Conversion Strategy at 65: How to Split the 0% Tax Bracket With Capital Gains Harvesting

Written by Dan PasconeSeptember 14, 2026

TL;DR

In 2026, a married couple both 65 or older can pull about $47,500 from a traditional IRA, through withdrawals or a Roth conversion, at zero federal tax, using the standard deduction plus the 65-and-older and new senior deductions stacked together. Above that floor, capital gains stack on top completely untaxed up to just under $99,000, for roughly $146,000 of federal-tax-free income in a single year. But conversions and capital gains harvesting are fighting over that same bracket space, not sitting in separate buckets, so the real question is how to split it. Claim the $47,500 floor every year without debate, then lean toward Roth conversions over gains harvesting for the room above it, because a traditional IRA has no step-up in basis at death and typically must be emptied by your heirs within 10 years, often at their highest tax rate, while your brokerage account already gets a full step-up.

You've probably seen the standard advice: convert to Roth while you're in a low tax bracket. That advice isn't wrong. But if it's the only move you make in these years, you're leaving money on the table. Go the other direction and skip conversions to harvest capital gains instead, and you might be solving a problem that was never going to cost you anything.

What Is the Income Valley, and Why 2026 Retirees Get $47,500 Tax-Free

After your paycheck stops, but before Social Security and required minimum distributions start, you hit the income valley. The only taxable income you have in those years is whatever you choose to create, and your deductions are still there, unused, waiting for income to offset them.

For 2026, a married couple, both 65 or older, gets a $32,200 standard deduction, another $3,300 for being 65 or older, and up to $12,000 from the newer senior deduction, which phases out once income crosses $150,000. Stack those together and you get $47,500 of ordinary income, pulled from a traditional IRA as a withdrawal or a Roth conversion, at zero federal tax. If you aren't already claiming this every year, that's free money on the table whether or not you ever do a conversion.

The Second Layer: 0% Capital Gains Room Stacks on Top

Here's where most of the videos on this topic stop, and where it actually gets interesting. Once that $47,500 of ordinary income is used up, your ordinary income for the year is exactly zero. When ordinary income is zero, long-term capital gains stack on top of it completely untouched, up to just under $99,000 for a couple in 2026. If you've got a brokerage account with appreciated positions, you can harvest close to $99,000 of gains and owe nothing on those either. Add it up and you've got roughly $146,000 of income in a single year that costs zero in federal tax.

Why These Two Strategies Are Actually Fighting Over the Same Space

That $47,500 income floor and that $99,000 capital gains ceiling aren't two separate buckets. They're stacked on the same ladder: ordinary income fills in from the bottom first, and capital gains stack directly on top of it. The moment you pull more than $47,500 of ordinary income, say because you're doing a Roth conversion on top of the tax-free withdrawal, every extra dollar of conversion pushes that 0% 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% capital gains room into gains taxed at 15% instead. The real question for anyone with a serious pre-tax balance isn't should I convert or should I harvest gains. It's how much of this shared space to spend on each one this year, which is a different conversation entirely, and one that's tangled up with the bigger question of when you leave corporate work in the first place, since your exit year sets how many of these income-valley years you actually get.

What Most People Miss

Ask yourself what happens to these two accounts if you never touch them again and pass them to your kids. A brokerage account gets a full step-up in basis at death: every dollar of embedded gain you're sitting on disappears for tax purposes the day you pass it on. A traditional IRA gets no such treatment. Every dollar in there is still fully taxable to whoever inherits it, and under current law they typically have to empty that account within 10 years, often during their own peak-earning years, at their highest tax bracket.

If you spend your low-bracket room harvesting capital gains that were never going to be taxed anyway, you've used up cheap bracket space to solve a problem that was eventually going to solve itself. If you spend that same room converting IRA dollars to Roth instead, you're permanently shrinking a balance that has no good way out, and doing it at 10-12% federal instead of handing that tax bill to your kids at 32-35% years from now. That's why, for most households in this position, the free $47,500 floor gets claimed every year without debate, but the room above it typically leans toward conversions first and gains harvesting second, unless there's a specific reason to diversify.

A Concrete Example

Consider a couple we'll call Mark and Alina, both 63, both recently retired. Mark spent three decades in a senior operating role and rolled over just over $4.2 million into an IRA when he left. Alina still holds a meaningful position in her former employer's stock from years of RSU grants, worth about $1.8 million, with most of that an embedded gain. They were nervous about two things: the size of the required distributions waiting for Mark at 73, and the fact that Alina's concentrated stock made up an outsized chunk of their net worth that they knew they'd need to trim over time.

Instead of picking one strategy, here's the split: every year, they pull $47,500 straight from the IRA completely tax-free using the deductions above. Then, instead of harvesting the rest of the available room in capital gains, they use most of the remaining space, up to the top of the 12% bracket, to convert additional IRA dollars to Roth. They only harvest capital gains beyond that point when there's an actual diversification reason to trim the concentrated position, not simply because the rate happens to be 0% that year.

The result: Mark's IRA shrinks every year at a federal rate of 10-12%, instead of waiting to be forced out later at whatever bracket the required distributions push them into. Alina's concentrated position gets trimmed on a schedule built around managing risk, not chasing a 0% tax rate her heirs were likely going to get anyway through the step-up. Done consistently for a decade, this doesn't just avoid a tax bill today. It reshapes which account is doing the heavy lifting in their estate, and which one quietly disappears from their tax return before RMDs ever force the issue.

Three Things to Check Before You Build This Yourself

- This is federal planning. Your state may tax this income differently, so don't assume zero federal tax means zero tax at all. - Timing with Social Security matters. This structure works best before you've claimed benefits. Once Social Security starts, up to 85% of it can become taxable, and that stacks underneath everything discussed here, so it's worth deciding when to claim alongside this strategy, not after it. - Watch ACA marketplace coverage. If you're retired before 65 and on marketplace health coverage, both a large Roth conversion and a large capital gains harvest raise your income for subsidy purposes, so check the premium impact before you execute either one, not just the tax impact.

Who This Is For

This is written for high-earning executives now in or approaching the income valley, typically a seven-figure traditional IRA or 401(k) built over a corporate career, alongside a taxable brokerage account carrying real embedded gains, often from concentrated employer stock. If that's your situation, the order you do things in during these years is worth more than either strategy on its own, and it's exactly the kind of annual decision we build into a client's ongoing Life-Driven Planning process rather than treating as a one-time December tax trick.

Frequently asked questions

Should I do a Roth conversion or harvest capital gains first?

Claim the $47,500 tax-free ordinary-income floor first, every year, since that's free regardless of which strategy you lean into. For the room above it, most households with a large pre-tax IRA and no urgent diversification need should lean toward Roth conversions first, because unconverted IRA dollars have no step-up in basis at death and get taxed to your heirs later, often at a higher rate than you'd pay converting now. We walk clients through the exact split for their numbers rather than defaulting to one answer, since concentration risk or a large embedded gain can change the calculus.

How much can retirees earn tax-free in 2026?

For a married couple both 65 or older, roughly $146,000 in a single year: about $47,500 of ordinary income (IRA withdrawals or a Roth conversion) using the stacked standard, 65-and-older, and senior deductions, plus up to about $99,000 of capital gains stacked on top at the 0% bracket. Our Roth conversion tax strategy guide walks through the mechanics of the conversion side of that math in more depth.

What is the income valley in retirement?

It's the stretch after your paycheck stops but before Social Security and required minimum distributions begin. In those years, your taxable income is entirely a choice you make, not something reported to you, which is what makes it the highest-leverage tax planning window most retirees ever get.

Does a Roth conversion reduce how much I can harvest in capital gains that year?

Yes, dollar for dollar. Ordinary income, including a Roth conversion, fills the tax brackets from the bottom first, and capital gains stack directly on top of it. Convert an extra $30,000 and you've moved $30,000 of what would have been 0% capital gains room into gains taxed at 15% instead.

What happens to my traditional IRA if I leave it to my kids instead of converting it?

It doesn't get the step-up in basis a brokerage account gets at death. Your heirs inherit it fully taxable and, under current law, typically must empty the account within 10 years, often during their own highest-earning years. That's the core reason converting now, even at a modest federal rate, often beats leaving the balance untouched.

Does this still work if I haven't claimed Social Security, or I'm on ACA marketplace coverage?

It works best before you've claimed Social Security, since up to 85% of benefits can become taxable once you start and that income stacks on top of everything above. If you're retired before 65 and on marketplace coverage, both a large conversion and a large gains harvest raise your income for premium subsidy purposes, so it's worth checking that impact alongside the tax math, ideally as part of a full Life-Driven Planning review rather than a decision made in isolation.

If you're sitting on a seven-figure IRA and a taxable account with real embedded gains, this is exactly the kind of decision where the order you do things in is worth more than either strategy alone.

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