The $1.3M retirement puzzle

A couple in their mid-60s with $1.3M in a traditional 401(k), $40K in Social Security, and no mortgage can withdraw $45K yearly and stay in the 12% tax bracket instead of paying 22%.

The 12% bracket has room

For 2026, married couples can earn up to $100,800 in taxable income before hitting the 22% bracket. Add the $32,200 standard deduction and gross income can reach roughly $133,000 tax-free at higher rates.

This couple has $53K unused

With $47,000 in taxable income from their $45K withdrawal and $34K in taxable Social Security, they have roughly $53,000 of bracket space remaining before hitting 22%. Most retirees leave this unused.

“the gap between the couple's actual taxable income and the top of the 12% bracket is bracket space that expires every December 31.”

Strategy 1: Roth conversions

Move $40K to $50K from a traditional 401(k) into a Roth each year at 12%. This permanently shrinks future required minimum distributions and avoids paying 22% or 24% on those dollars later.

Strategy 2: Capital gains harvesting

Long-term capital gains are taxed at 0% while staying in the 12% bracket. Sell winners in a taxable brokerage account, reset cost basis, and pay zero federal tax on the gains.

“Long-term gains are taxed at 0% while a joint filer stays in the 12% ordinary bracket.”

Three ways the plan breaks

Interest income from CDs or savings accounts eats bracket room. Medicare surcharges jump when income crosses IRMAA thresholds. SECURE 2.0 forces high earners age 50+ to route catch-ups to Roth 401(k)s, raising current taxes.

Execute in December

Map all 2026 income sources and calculate the exact gap to $100,800 of taxable income. Execute Roth conversions in December after final income is known to avoid accidentally crossing into 22% or triggering IRMAA surcharges.

“Execute the conversion in December, after final income is known, to avoid accidentally crossing into 22% or the first IRMAA tier.”