Should You Convert to a Roth or Preserve Your 0% Capital Gains? Here’s How I’d Think About It

By Joe Anderson, CFP®

When you’re already retired, sitting on several million dollars, and trying to decide between keeping your 0% capital gains rate or performing Roth conversions, you’re not making a “basic” retirement decision you’re making one of the biggest tax-planning decisions of your life. That’s exactly the position Joe Mama from Virginia finds himself in, and it’s a situation I see often with early retirees who have large tax-deferred balances.

Joe is 57, retired, and has $4 million saved about $2 million in tax-deferred retirement accounts and the rest in taxable investments. His taxable income is roughly $65,000 after deductions, which means he can harvest around $30,000 of capital gains every year at a 0% federal tax rate. Losing that 0% bracket is what’s causing him the most anxiety, and I get it. Once you start converting dollars from an IRA to a Roth, that conversion counts as ordinary income. That income pushes your capital gains into higher brackets. And yes, it means giving up that 0% treatment.

But here’s the tricky part: keeping that 0% bracket forever might not be possible or even smart.

With $2 million in tax-deferred accounts, Joe is staring down some massive future Required Minimum Distributions (RMDs). If he waits until his early to mid-70s, those RMDs could easily push his income into the 24% bracket or higher. I’ve seen retirees enter retirement with low taxes, only to get crushed by forced distributions later. That’s why his advisor is suggesting Roth conversions, and honestly, I agree with the reasoning. You either voluntarily recognize income now at 12–22%, or you involuntarily recognize it later at 24–32% or more.

Joe is spending around $216,000 per year, which means he’s withdrawing roughly 5% of his portfolio every year. That’s doable at 57, but it’s on the high side, and without a long-term tax plan, those withdrawals will only get more expensive later. The goal here is tax diversification having the flexibility to pull from different buckets without triggering unintended tax headaches. If Joe maintains everything in pre-tax accounts, he’ll have very little flexibility once RMDs hit.

Now let’s talk about managing the capital gains side of the equation. Joe doesn’t have to convert so aggressively that he loses the 0% bracket entirely. In early-retirement planning, I often recommend a blended strategy: convert just enough to stay in a favorable tax bracket while still harvesting some gains at 0%. That could mean converting up to the top of the 12% bracket, or even the 22% bracket if projections show future taxes rising. This is also where tax-loss harvesting plays a huge role banking losses can help you preserve 0% gains even while doing partial conversions.

Then there’s Thomas, age 66, who had questions about Roth IRA withdrawal rules. This comes up constantly: If you’re over age 59½, there’s no five-year waiting period on withdrawing contributions or conversions from your Roth IRA. The only five-year rule that really matters for him is tied to withdrawing growth. As long as he’s had any Roth IRA open for five years, he can access all growth tax-free. Roth IRAs are incredibly flexible at this stage of life perfect for large irregular purchases, avoiding bracket creep, or smoothing income when he doesn’t want to draw heavily from his traditional IRA.

Another couple, Lizzy and Billy, are still working toward retirement. They’re mid-50s with $3.5 million saved, most of it in tax-deferred accounts, and they want to spend $120,000 a year in retirement. Their plan shows exactly why tax diversification matters. They’ll have Social Security, a pension, taxable accounts, and large traditional IRAs. Without some Roth strategies now, they’ll also face steep RMDs later. Whether you’re Joe, Thomas, or Lizzy and Billy, the principle is the same: balance your accounts so you don’t get boxed into higher taxes later.

If you’re navigating the same confusion Roth conversions, capital gains, Social Security timing, or figuring out whether you’re actually ready for retirement it’s worth taking the time to model your income, taxes, and future RMDs. You don’t want to wake up one day with a giant tax bomb because you didn’t take advantage of the low-income years in your 50s and early 60s.

If you want a deeper understanding of your own plan, I always recommend getting a financial assessment. Whether it’s with a professional or through a self-guided blueprint, understanding your income sources, withdrawal strategy, and tax traps can make all the difference. Retirement isn’t just about having enough money it’s about managing it in the smartest, most tax-efficient way possible.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

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