Overview

This update revisits the perennial planning question: when should a taxpayer realize taxable gains today versus recognize ordinary income through Roth conversions? The answer depends on marginal ordinary rates, capital‑gains treatment, deductions and credits, filing status, interactions with Medicare/IRMAA and state tax rules, and estimated‑tax mechanics. This November 2026 update adds recent policy context, fresh practical examples, and an action checklist that tax planners and DIY investors can apply now.

Background: What has changed since mid‑2026 and why it matters

The core tradeoffs remain unchanged: taxable sales generally create long‑term capital gains taxed at preferential rates; Roth conversions create ordinary taxable income but shelter future growth and remove required minimum distributions (RMDs) from the survivor/estate calculus. Two multi‑year developments continue to shape the decision:

  • RMD timing under SECURE Act 2.0: The Act (passed in 2022) raised the RMD age (phased increases to 73 and later to 75). That shift gives more runway for conversion planning and changes the urgency of Roth accumulation for those approaching prior RMD ages.
  • Persistent IRMAA and benefit‑phaseout risk: Medicare Part B/D surcharges and many federal/state benefit phaseouts are based on modified adjusted gross income (MAGI). Large Roth conversions can trigger or increase IRMAA assessments, meaning the short‑term cost of a conversion can be materially larger than the tax on the conversion alone.

In 2026, many taxpayers also report more frequent use of multi‑year, bracket‑filling conversions because software tools and wealth managers now routinely run scenario projections that incorporate state decoupling, NIIT, and benefit‑phaseouts.

Data and evidence: what the numbers and trends show (how to check current inputs)

Effective decision‑making requires current tax parameters. For up‑to‑date inputs check:

  • IRS annual tables and publication updates for bracket thresholds, standard deduction, and capital gains thresholds (irs.gov).
  • Tax Foundation and Joint Committee on Taxation analyses for distributional and statutory changes.
  • State departments of revenue for state capital gains treatment and any decoupling rules that affect Roth conversion recognition.

Key rate/threshold considerations that drive the math:

  • Marginal ordinary income tax brackets (determine conversion tax rates).
  • Long‑term capital gains brackets and the 3.8% Net Investment Income Tax (NIIT) threshold.
  • MAGI thresholds that trigger Medicare IRMAA or phase out credits (e.g., ACA subsidies, education credits, child tax credit phaseouts).

Because brackets are indexed annually for inflation and some state rules change year to year, the single most common mistake we see is using stale bracket or MAGI thresholds. Always refresh inputs before modeling.

Core trade‑offs revisited

  • Tax character and rates: Capital gains generally benefit from preferential rates; conversions are taxed as ordinary income. Whether converted dollars pay more or less tax today depends on your marginal ordinary rate versus your effective capital gains rate (including NIIT and state tax).
  • Future tax control: Roths remove future exposure on growth and eliminate RMDs for the account owner/beneficiaries in many cases, a major estate‑planning benefit.
  • Benefit phaseouts and IRMAA: Roth conversions can push MAGI across thresholds that materially increase Medicare premiums or phase out credits, adding effective cost beyond tax paid.
  • Cash‑flow to pay the tax: Conversions are most efficient when taxes are paid from outside the retirement account—paying conversion tax from the IRA reduces the benefit of the conversion.

Bracket-by-bracket guidance — updated practical points (Nov 2026)

Lower ordinary‑income brackets

If your ordinary income is currently low, Roth conversions often remain attractive. Converting while in a low ordinary bracket can lock in lower tax on future, potentially higher‑taxed distributions or protect heirs from RMD‑driven income. Two updated considerations:

  • Use year‑specific standard deduction and bracket room: with inflation indexing, small increases in bracket thresholds can create modestly more room for conversions in 2026 than in prior years—verify current IRS tables.
  • Watch benefit interactions: even modest conversions can affect premium tax credits or income‑tested programs—model MAGI both before and after conversion.

Middle brackets

In middle brackets, the hybrid approach continues to dominate practice: use sales to the extent capital gains bands are favorable (including any 0% capital gains window for lower amounts of taxable income) and stagger Roth conversions to fill ordinary‑income bracket space. Recent practitioner behavior shows more reliance on automated multi‑year projection tools to test 3–7 year conversion ladders, incorporating state taxes and NIIT triggers.

High brackets and surtax exposure

For high earners, the short‑term cost of conversions is frequently prohibitive. Common playbooks now emphasize:

  • Sell into any remaining low capital gains bands (if available) rather than convert when ordinary rates are higher than effective capital gains rates.
  • Seek low‑income years for large conversions—examples include the year after job loss, retirement year before Social Security/RMDs start, or in the year of large deductible events.
  • Consider alternative techniques—charitable remainder trusts, donor‑advised funds, installment sales, or strategic gifting—to shift tax liabilities without invoking high ordinary income in a single year.

Fresh, concrete example (illustrative — plug in your current rates)

Assumptions (illustrative only): married filing jointly; baseline ordinary income $150,000; couple has $200,000 available to either sell (long‑term gain) or convert from a traditional IRA; assume long‑term capital gains effective rate = 15%, NIIT 3.8% applies, and marginal ordinary rate on conversion = 24%. Always replace these with current IRS/state numbers.

  • Tax if selling gains: 200,000 × (15% + 3.8%) = 200,000 × 18.8% = $37,600.
  • Tax if converting: 200,000 × 24% = $48,000.
  • Upfront cost difference: conversion costs $10,400 more today.

But the comparison must include future growth. If the converted 200,000 grows tax‑free and the after‑tax proceeds from the sale grow in a taxable account, the conversion can outperform over time. Example if taxes are paid from outside funds (so the full 200k is left to grow):

  • At 6% growth for 20 years: Roth FV = 200,000 × 1.06^20 ≈ $641,000 (tax‑free).
  • Taxable sale route: sell, pay $37,600 tax, invest $162,400; FV = 162,400 × 1.06^20 ≈ $521,000; taxable on gains later (reducing after‑tax value further).

Net advantage to Roth in this simplified example ≈ $120,000 over 20 years. But if you must pay conversion tax from IRA funds (reducing the converted principal), the advantage shrinks or disappears. The example shows why modeling assumptions (who pays tax; expected return; holding horizon; future tax environment) drive the right answer.

Multiple perspectives: advisors, tax attorneys, and financial planners

  • Tax preparers: Emphasize accurate current‑year inputs—bracket thresholds, NIIT, state law—and the mechanics of estimated taxes and withholding to avoid penalties.
  • Financial advisors: Stress sequence‑of‑returns and portfolio allocation: Roth conversions are most valuable when markets are down (you convert when balances are lower) and when you expect higher future tax rates.
  • Estate planners: Point to Roths as efficient for heirs (tax‑free growth and fewer RMD constraints), but note IRMAA and state tax consequences may offset benefits for some clients.

Implementation checklist — updated for November 2026

  1. Pull current IRS and state tax brackets, long‑term capital gains thresholds, and MAGI thresholds for IRMAA and benefit phaseouts for the tax year in question.
  2. Project income for the next 3–7 years under multiple scenarios: baseline, sale(s), staggered conversions, and mixed approach.
  3. Model who will pay conversion taxes (outside funds vs. from the retirement account) and the impact on principal.
  4. Include state tax treatment and check for any state-specific rules on Roth conversion recognition or decoupling.
  5. Plan estimated tax payments: use withholding where feasible; consider annualized installment method if income is concentrated late in the year; document rationale to support safe‑harbor positions.
  6. Set annual review dates—Roth conversion opportunities change as income, asset values, and law evolve.

Implications for readers

For many taxpayers, a disciplined, multi‑year plan that blends opportunistic sales with staggered Roth conversions yields a better after‑tax outcome than a single one‑time decision. Short horizons, expected declines in tax rates, or inability to pay conversion tax from outside funds favor sales. Long horizons, expectations of higher future tax exposure for heirs, and the desire to eliminate RMDs tilt toward Roth conversions.

Outlook — what to watch for in the near term

Through the remainder of 2026 planners should watch three items closely:

  • Congressional tax proposals that affect bracket structure, capital gains rates, or NIIT thresholds; any legislative change could materially alter conversion vs. sale math.
  • IRS guidance or administrative actions clarifying MAGI calculations or the treatment of conversions for benefit eligibility.
  • State legislative changes—some states periodically revisit recognition and timing rules for retirement income and Roth conversions.

Because the decision is highly input‑sensitive, effective planning in November 2026 is defined less by a single rule and more by disciplined modeling, up‑to‑date inputs, and coordinated cash‑flow planning for tax payments.

Conclusion

There is no universal answer. Use scenario modeling with current federal and state inputs, examine who will fund the conversion tax, and map the interactions with IRMAA and benefit phaseouts. For most planners the highest value actions in 2026 are: (1) lock in low ordinary income years for conversions; (2) sell into capital gains bands where favorable; and (3) build multi‑year conversion ladders rather than single‑year gambits. Consult a tax professional with your current numbers before executing.

FAQ

Will a Roth conversion always increase my Medicare premiums (IRMAA)?

Not always, but it can. Roth conversions increase MAGI in the year of conversion and may trigger higher Medicare Part B/D premiums (IRMAA) if MAGI crosses IRMAA thresholds. Model the conversion year’s MAGI and the look‑back rules for Medicare premiums; in some cases smaller conversions spread over years avoid IRMAA cliffs.

Should I pay conversion taxes from the retirement account or from outside funds?

Paying taxes from outside funds preserves the converted principal and is almost always more tax‑efficient over time. Withdrawing from the IRA to pay conversion tax reduces the converted balance, often erasing the long‑term benefit of the conversion.

How do state taxes affect the conversion vs. sale decision?

Materially. States differ on whether they tax retirement distributions, capital gains, or allow special treatment for conversions. Some states decouple from federal rules. Always include state income tax and state‑specific phaseouts in your model.

Is it better to sell taxable assets now if markets are high?

Market levels matter for two reasons: the capital gain amount and the starting base for conversions. Selling high locks in gains and tax now; converting when account values are depressed (after a market decline) gives more value for the same tax cost. Many advisors favor converting some assets after a market decline and selling taxable gains opportunistically when capital gains thresholds are favorable.

Where can I get the exact numbers to run my model?

Start with the IRS website for current year federal brackets and capital gains thresholds, your state department of revenue for state rules, and Medicare for IRMAA thresholds. Tax research sites such as the Tax Foundation, JCT reports, and major accounting firms publish annual summaries that are helpful for modeling.