Roth Conversion + Capital Gains Harvesting at 65: How to Cut $54,000 in Retirement Taxes Before RMDs Hit at 73
Roth Conversion + Capital Gains Harvesting at 65: How to Cut $54,000 in Retirement Taxes Before RMDs Hit at 73
You have a $1.5M traditional IRA, $200,000 in a taxable brokerage account, and you just retired at 65. You're planning to claim Social Security at 70. For the next 8 years, you have no required minimum distributions, no Social Security income, and — if you handle this right — the lowest effective tax rates you'll see for the rest of your life.
Most people let those 8 years pass without doing anything. They protect the IRA from taxes today and watch it grow untouched until age 73, when the IRS hands them a mandatory withdrawal schedule they didn't design, in a tax bracket they didn't choose.
Here's what that costs in our worked example: approximately $54,000 in avoidable lifetime taxes — and that number climbs steeply if your IRA is larger.
The 8-Year Window You're Probably Ignoring
Thanks to SECURE 2.0, the required minimum distribution (RMD) starting age is now 73. For a couple retiring at 65, that creates an 8-year gap — a "tax valley" — before:
- Social Security income begins
- RMDs begin forcing taxable withdrawals
- Medicare IRMAA surcharges potentially kick in
During this window, your gross income can be remarkably low if you're living off Roth IRA funds or a taxable brokerage account. That low income is not just a lifestyle observation — it's a strategic asset. It allows you to run two simultaneous tax maneuvers: Roth conversions at the 10–12% rate and long-term capital gains harvesting at 0%.
If you want to understand the full mechanics of how SECURE 2.0 reshaped the RMD landscape — including new QCD rules that can offset these distributions later — the post on SECURE 2.0's RMD Age 73 Changes and QCD Rules walks through how a $1.5M IRA owner can eliminate $28,000 in taxes at 73 through qualified charitable distributions.
The Tax Bracket Math: What Your "Empty" Years Are Actually Worth
For a married couple filing jointly in 2025:
| Bracket | Ordinary Income Range | Long-Term Capital Gains Rate |
|---|---|---|
| 10% | $0 – $23,200 | 0% |
| 12% | $23,200 – $94,300 | 0% |
| 22% | $94,300 – $201,050 | 15% |
| 24% | $201,050 – $383,900 | 15% |
That 0% long-term capital gains rate applies as long as your total taxable income (ordinary income + capital gains) stays under $94,050. That's the number most retirees have never seen on a tax form — because they've never had the income structure to use it.
The strategy: stack Roth conversions and capital gains harvesting to fill the 12% bracket exactly — and harvest gains at 0% on top.
The Worked Example: $1.5M IRA, Age 65, No Social Security Yet
Assumptions:
- Married couple, both 65
- $1.5M traditional IRA (growing at 6%/year)
- $200K taxable brokerage (appreciated stock, average basis of $100K — $100K in unrealized gains)
- $150K Roth IRA (living expenses covered here during conversion years)
- Social Security at 70: $36,000/year combined
Annual Tax Plan During the Conversion Window (Ages 65–72)
| Move | Amount |
|---|---|
| Roth conversion from traditional IRA | $60,000 |
| Long-term capital gains harvest (reset basis) | $25,000 |
| Standard deduction (MFJ, 2025) | –$30,000 |
| Ordinary taxable income | $30,000 |
| Total taxable income (ordinary + cap gains) | $55,000 |
Tax calculation:
- Ordinary income tax: 10% × $23,200 + 12% × $6,800 = $3,136
- Capital gains tax: $0 (taxable income of $55,000 is below the $94,050 threshold)
- Annual tax bill: ~$3,136
Over 8 years, you convert $480,000 from traditional to Roth and reset $200,000 in taxable brokerage basis — paying roughly $25,088 total in taxes.
What Happens If You Don't Convert
Leave the $1.5M IRA alone for 8 years at 6% growth:
$1.5M × 1.594 = $2,391,000 at age 73
First-year RMD (IRS Uniform Lifetime Table, divisor 26.5):
$2,391,000 ÷ 26.5 = $90,226
Now add Social Security income ($36,000/year — 85% taxable = $30,600) and apply the standard deduction:
Taxable income = $90,226 + $30,600 – $30,000 = $90,826
Tax on $90,826:
- 10% × $23,200 = $2,320
- 12% × $67,626 = $8,115
- Annual tax: ~$10,435
At this rate, your tax burden over the first 5 years of RMDs alone totals roughly $52,175 — before your RMDs grow larger as the divisor shrinks year by year.
The lifetime tax gap between these two paths: ~$54,000 in this scenario. Your specific numbers will differ based on your IRA size, growth rate, Social Security benefit, and filing status — which is exactly why running your own projection matters.
This is the kind of side-by-side modeling Lontevis builds for you — showing exactly which tax path your current strategy puts you on versus what a systematic conversion plan would cost.
The IRMAA Risk That Compounds Every Year You Wait
For retirees with IRAs above $2M, there's a second cost hiding inside the "no conversion" strategy: Medicare IRMAA surcharges.
IRMAA (Income-Related Monthly Adjustment Amount) kicks in when your Modified Adjusted Gross Income exceeds $212,000 for married filers in 2025. The Part B premium jumps from $185.00/month to $259.00/month at the first tier — a $888/year increase. At higher tiers, the surcharge can exceed $5,000/year per person.
A $2.5M IRA left untouched from 65 to 73 grows to approximately $3.98M at 6% annual growth. The first-year RMD would be $3.98M ÷ 26.5 = $150,189. Add Social Security and any other income, and a couple can easily cross the IRMAA threshold — permanently.
The catch: IRMAA is assessed based on your income from two years prior. Your 2027 Medicare premium is based on your 2025 income. There is no retroactive fix. The window to manage this is the years before RMDs begin.
For a deeper look at how this plays out with a $2M IRA and the specific IRMAA tiers involved, the post on Roth Conversion at 63 and IRMAA Avoidance on a $2M IRA shows how $80,000/year in systematic conversions prevents a six-figure Medicare surcharge over a 20-year retirement.
Capital Gains Harvesting: The Strategy Nobody Talks About at 65
While Roth conversions get most of the attention, zero-percent capital gains harvesting is often the higher-leverage move in the early retirement years — particularly for retirees with appreciated stock in taxable accounts.
The mechanics:
- Sell appreciated stock while your taxable income is low (inside the 0% LTCG band)
- Immediately repurchase the same stock (no wash-sale rule for gains — only losses)
- Your cost basis resets to the current higher price
- When you eventually sell for living expenses, far less of the gain is taxable
In our worked example, harvesting $25,000/year over 8 years resets $200,000 of basis — tax-free. If that $200,000 in gains were eventually realized at the 15% rate in a higher-income year, you'd owe $30,000. Harvested at 0%: you owe nothing.
The rule of thumb: In any year where your taxable income (ordinary income + capital gains) falls below $94,050 (MFJ, 2025), you have headroom for 0% gains. Model how much room is left after your Roth conversion and fill it with the most-appreciated positions in your taxable account.
You can model this for your specific situation at Lontevis — the optimizer calculates your available 0% gains headroom after stacking all income sources.
One Operational Detail That Matters for Retirees Paying Taxes on Conversions
When you do large Roth conversions, you're responsible for paying tax on the converted amount — either through withholding or quarterly estimated payments. A recent CNBC report noted that 1.4 million filers are currently facing tax refund delays related to the IRS's phaseout of paper checks, with CP53E notices going out to affected filers.
If you overpay estimated taxes on a conversion and expect a refund, ensure the IRS has your direct deposit information on file. Under the IRS's accelerating push toward electronic payments, paper refund checks are increasingly subject to delays — and retirees managing year-end tax balancing with precision can't afford timing uncertainty. Update your direct deposit preferences at IRS.gov or through your tax preparer well before the April deadline.
Comparing the Two Paths: A Summary
| Metric | No Conversion Strategy | Conversion + Harvest Strategy |
|---|---|---|
| IRA balance at 73 | ~$2.39M | ~$1.81M |
| Roth IRA balance at 73 | ~$150K | ~$710K |
| First-year RMD | ~$90,226 | ~$68,302 |
| Taxes paid ages 65–72 | ~$0 | ~$25,088 |
| Annual tax at 73 | ~$10,435 | ~$7,200 |
| IRMAA risk (large IRA) | High | Significantly reduced |
| Taxable brokerage basis | Low (unreset) | High (reset at 0%) |
The conversion strategy costs more in taxes now — but at a rate you control, in a bracket you choose, during years when you have maximum flexibility.
For retirees worried about market timing during this conversion window, the post on sequence of returns risk on a $1.2M portfolio covers how a year-one bear market can interact with your conversion strategy — and why maintaining a cash buffer protects both your conversion plan and your withdrawal sequence.
The Variable That Changes Everything
None of these numbers are universal. The optimal conversion amount per year depends on:
- Your IRA balance and growth rate — a 4% grower vs. a 7% grower creates very different RMD trajectories
- Your Social Security benefit and claiming age — earlier claiming reduces the tax valley but also reduces lifetime income
- Your state income tax — 9 states don't tax IRA distributions; others treat conversions as ordinary income
- Your health status — if your life expectancy is shorter, the break-even on conversions shifts meaningfully
- Whether you have pension income — a pension fills the lower brackets, reducing conversion room
The right annual conversion amount for a couple with a $1.5M IRA and zero pension looks completely different from someone with a $42,000/year pension occupying half their 12% bracket.
This is precisely why the 4% rule — and general guidance to "do Roth conversions" — isn't enough. The bracket math has to be run against your specific income stack, year by year. If you haven't modeled your own conversion schedule through the decade before your RMDs begin, you're leaving the most actionable tax window of your retirement unoptimized.
Run your numbers at Lontevis — the optimizer models your Roth conversion ladder, capital gains harvesting headroom, and IRMAA exposure across your specific account structure, so you know exactly how much to convert each year and when to stop.
Sources
- Hilton Credit Cards Add Free Night to Bonus Offers (Limited Time) — NerdWallet Retirement
- 1.4 million filers face tax refund delays amid IRS paper check phaseout — CNBC Personal Finance
- If the USPS Runs Out of Money, Will You Still Get Mail? — NerdWallet Retirement
- Mortgage Rates Today, Friday, March 27: Oof — NerdWallet Retirement
- Rising Mortgage Rates May Squelch Spring Homebuying Season — NerdWallet Retirement