But there is that feeling of knowing you did it just right, fully maximizing trunk space and getting everything you need all neatly packed into the trunk.

I think this can also be true in tax planning, specifically in retirement.

Maximizing lower tax brackets can lead to substantial lifetime tax savings. But many retirees who have saved in taxable accounts and pre-tax accounts are left with a choice.

The strategy involved tax-gain harvesting, or Roth Conversion planning.

Most financial advisors will tell you to pick one strategy and stick with it. They’re either “Team Roth” or “Team Harvesting,” treating this like a binary choice.

They’re wrong.

This false either-or mentality can cost retirees hundreds of thousands of dollars in unnecessary taxes. The optimal strategy isn’t choosing between Roth conversions and tax gain harvesting—it’s understanding how to coordinate both strategies to maximize your tax-free opportunities.

Working with retirees, we maximize the usage of tax brackets much like you would packing for a vacation – utilize as much room as possible, but nothing more.

The Mistake Almost Everyone Makes

Meet Mike & Sarah, 62-year-old retirees:

Sarah & Mike’s financial profile:

Traditional IRA: $800,000
Taxable brokerage account: $600,000 (with $200,000 in unrealized gains)
Annual income need: $80,000
Years until Required Minimum Distributions (RMDs): 13

Their financial advisor presented them with two options:

Option A: Aggressive Roth Conversions

Convert $60,000 annually for 10 years
Pay taxes at the 22% bracket ($13,200 annually)
Total conversion taxes: $132,000
Benefit: Eliminate future RMDs

Option B: Maximize Tax Gain Harvesting

Realize $30,000 in capital gains annually at 0% tax
Let the IRA grow until RMDs begin
Benefit: Zero taxes on harvested gains

Some advisors may only focus on one of these two tax planning strategies.

The reality: There’s a third option that combines both strategies and saves Mike & Sarah over $300,000 compared to either single-strategy approach.

Understanding the Two Tax Strategies

Before diving into the combined strategy, let’s understand why both approaches are powerful on their own.

Tax Gain Harvesting: The 0% Magic

What it is: Intentionally realizing long-term capital gains while your taxable income is low enough to qualify for 0% capital gains tax rates.

How it works: Long-term capital gains have separate tax brackets from ordinary income:

2025 Capital Gains Tax Brackets:

0% rate: Up to $48,350 (single) or $96,700 (married filing jointly)
15% rate: $48,350-$533,400 (single) or $96,700-$600,050 (married)
20% rate: Above $533,400 (single) or $600,050 (married)

The opportunity: After accounting for your standard deduction, you can harvest substantial gains at 0% tax.

Example for married couple:

Standard deduction: $31,500
Standard deduction enhancement for each individual over A65: $1,600 ($3,200 combined)
Temporary Standard Deduction Enhancement over A65: $6,000 each (subject to income phase-outs)
Additional room for 0% capital gains: $96,700
Total (federal) tax-free income potential: $143,400

Roth Conversions: The Future Tax Shield

What it is: Moving money from traditional retirement accounts to Roth accounts by paying taxes on the converted amount at current rates.

The strategy: Pay taxes today (hopefully at lower rates) to avoid potentially much higher tax rates when RMDs force distributions starting at age 73 or 75.

The power of compound tax savings:

Let’s use a realistic example with Mike & Sarah’s numbers:

Scenario: $50,000 in traditional IRA today

Option A – Convert to Roth Now:

Convert $50,000 at 12% tax bracket
Tax cost: $50,000 × 12% = $6,000 (paid from other funds)
Roth balance: $50,000 (grows tax-free)
Value in 10 years: $100,000 (tax-free withdrawals)

Option B – Leave in Traditional IRA:

$50,000 grows to $100,000 in 10 years (7% annual growth)
RMD forces distribution at 22% tax bracket (due to other RMDs)
Tax cost: $100,000 × 22% = $22,000
Net after-tax value: $78,000
The $6,000 of tax paid in example 1 would still be owed, but growth would depend on how the $6,000 is invested (for example – invested in the S&P 500 or in a savings account).

Long-term impact: Over multiple years, strategic Roth conversions can save hundreds of thousands in lifetime taxes while providing tax-free growth and inheritance benefits.

The Three Decision-Making Mistakes

Mistake #1: The “All Roth, All the Time” Error

The mindset: “I’ll convert everything to Roth and never pay taxes again in retirement.”

The problem: This approach ignores valuable 0% capital gains opportunities while paying 12-22% taxes on conversions.

Real cost example:

Annual Roth conversion: $60,000 at 22% = $13,200 in taxes
Missed capital gains harvesting: $30,000 at 0% tax
Opportunity cost: Paying $13,200 to convert money while missing $30,000 in tax-free gains

Mistake #2: The “Harvest Everything” Trap

The mindset: “I’ll take advantage of 0% capital gains rates and deal with RMDs when they come.”

The problem: Traditional IRAs continue growing, creating massive future tax obligations.

Real cost example:

Current IRA: $800,000
Value at age 75: $1.6 million (with growth)
Annual RMDs: $60,000+ starting amount, growing each year
Result: Permanently pushed into 22% tax bracket (depending on other income, potentially higher brackets)

Mistake #3: The “Paralysis by Analysis” Problem

The mindset: “This is too complicated. I’ll just take minimum distributions and hope for the best.”

The problem: Doing nothing results in the worst of both worlds—missing tax-free opportunities AND facing maximum future tax obligations.

The “Maximized Trunk Space” Solution

The breakthrough approach isn’t choosing between strategies—it’s systematically filling your available tax brackets like that trunk space for vacation. It may feel like Tetris, but when it all fits, it’s a thing of beauty.

Step 1: Assess Your RMD Reality

Critical question: Will your future RMDs push you into unacceptably high tax brackets?

Mike & Sarah’s projection:

Current IRA balance: $800,000
Projected balance at age 73: $1.6 million
Starting RMD: $60,000 (3.8% of balance)
Tax impact: Forces them into the 22% bracket permanently

Decision point: Large future RMDs make Roth conversions essential. Small projected RMDs might favor more tax gain harvesting. Of note, there are no RMDs for capital gains.

Step 2: The Tax Bracket Filling Strategy

The framework: Optimize your tax brackets in the following order:

Fill deduction space with necessary ordinary income – ordinary income is taxed less favorably than capital gains income
Fill 0% capital gains bracket with harvesting
Fill 10% and 12% ordinary income brackets with Roth conversions
Consider 15% capital gains bracket for additional harvesting

Mike & Sarah’s combination strategy:

Since Mike & Sarah are not yet 65, they don’t have access to enhanced deductions.
- This will change when they are 65 – when they should take advantage of this benefit.
Standard deduction coverage: $31,500 (baseline income)
0% capital gains harvesting: $30,000 (saves 15% vs. future rates)
12% Roth conversions: $35,200 (saves 10%+ vs. future RMDs)
Total optimized income: $96,700 with minimal tax impact

Of note, this does not include any tax-loss harvesting that Mike & Sarah can do as well, which should be considered on an annual basis.

Step 3: Multi-Year Coordination

The key insight: You have a limited window before RMDs begin. Maximize it strategically.

Mike & Sarah’s 13-year optimization plan:

Foundation Building: Phase 1 (Years 1-5):

Heavy tax gain harvesting: $40,000 annually
Moderate Roth conversions: $25,000 annually
Goals: Build cash reserves, begin IRA reduction

Acceleration: Phase 2 (Years 6-10):

Balanced approach: $30,000 harvesting + $40,000 conversions
Goals: Optimize both strategies as income stabilizes

Final Push: Phase 3 (Years 11-13):

Conversion focus: $50,000 annually
Continued harvesting: $25,000 annually
Goals: Maximize pre-RMD conversions

Total 13-year results:

Capital gains harvested: $350,000 at 0% tax (saves $52,500 vs. 15% rate)
Roth conversions: $425,000 at average 14% rate
Combined tax savings: $300,000+ over retirement

Now THAT is how you maximize trunk space!

Step 4: Liquidity Coordination

The strategic advantage: Use harvested capital gains to fund living expenses, freeing up IRA money for optimal conversion timing.

How it works:

Harvest $30,000 in gains for spending needs
Convert $35,000 from IRA to Roth (not needed for immediate expenses)
Pay conversion taxes from taxable account cash reserves

Advanced Implementation Strategies

Strategy 1: Income Smoothing

The approach: Vary your strategy mix based on other income sources.

Example scenarios:

Higher income years: Focus on tax gain harvesting
Lower income years: Prioritize Roth conversions
“Gap years” – No longer working, but delayed SS or IRA withdrawals: Balanced approach

Strategy 2: Tax Bracket Management

The precision approach: Calculate exactly how much conversion space exists in each tax bracket.

2025 Tax Brackets (Married Filing Jointly):

10%: $0 – $23,850 (after standard deduction)
12%: $23,850 – $96,950
22%: $96,950 – $206,700

Strategy: Fill the 12% bracket completely before moving to 22% bracket conversions.

Strategy 3: Geographic Optimization

State tax considerations:

No state income tax (TX, FL, WA, etc.): Roth conversions more attractive
High state income tax (CA, NY, NJ): May favor capital gains harvesting

Strategy 4: Legacy Planning Integration

Estate planning coordination:

Step-up in basis: Unrealized gains in taxable accounts receive step-up at death
- This is a considerable factor for leaving to children or next of kin.
Roth inheritance benefits: Tax-free growth and distributions for heirs
- As opposed to pre-tax assets, which must be distributed within 10 years and count as ordinary income.
- This is also a consideration for a surviving spouse, as married filing jointly brackets are more favorable than single brackets
Charitable strategies & considerations: Coordinate with donor-advised funds and qualified charitable distributions

The Decision Tree Framework

Use this systematic approach to determine your optimal strategy mix:

RMD Impact Assessment

Large traditional accounts (>$500K): Roth conversions essential
Moderate traditional accounts ($100K-$500K): Balanced approach
Small traditional accounts (<$100K): Focus on harvesting

Time Horizon Analysis

10+ years to RMDs: Aggressive combination strategy
5-9 years to RMDs: Moderate combination with conversion priority
<5 years to RMDs: May need conversion focus

Asset Allocation Review

Substantial taxable accounts with gains: Include harvesting
Limited taxable accounts: Conversion-focused strategy
Recent retirees with large 401(k) rollovers: Conversion opportunity

Current Tax Situation

Low current income: Favor Roth conversions
Moderate current income: Balanced approach
High current income: May delay conversions, focus on harvesting

Common Implementation Mistakes

Mistake 1: Not Coordinating Strategies

Problem: Treating each strategy in isolation

Solution: Integrated planning that considers both strategies simultaneously

Mistake 2: Ignoring State Taxes

Problem: Focusing only on federal tax optimization

Solution: Factor in state tax implications for complete analysis

Mistake 3: Annual vs. Multi-Year Thinking

Problem: Optimizing one year at a time

Solution: Develop multi-year strategy with annual adjustments

Mistake 4: Perfect vs. Good Enough

Problem: Analysis paralysis seeking the “perfect” strategy

Solution: Implement good strategies consistently rather than waiting for perfection

Action Steps for Implementation

Complete Financial Assessment

Calculate projected RMDs at age 73 or 75
Inventory taxable account gains and basis
Assess current and projected income needs

Model Different Scenarios

Test various combinations of conversions and harvesting
Analyze impact of different conversion amounts
Consider timing variations based on other income

Develop Multi-Year Plan

Create year-by-year targets for each strategy
Build in flexibility for market and personal changes
Set review and adjustment schedules

Professional Coordination

Work with tax professional for tax preparation
Coordinate with financial planner for investment management & tax planning
Regular monitoring and strategy updates

The Bottom Line

The Roth conversion vs. tax gain harvesting decision isn’t about choosing sides—it’s about optimizing the combination that works best for your specific situation.

Key takeaways:

Most retirees can benefit from both strategies when properly coordinated
The optimal mix depends on your RMD projections, time horizon, and asset allocation
Multi-year planning beats annual optimization
Professional guidance is essential for complex coordination

The opportunity: Strategic coordination of both strategies can save hundreds of thousands in lifetime taxes while providing maximum flexibility and legacy benefits.

The risk: Choosing only one strategy or failing to coordinate them properly can cost you six figures in unnecessary taxes.

With the amount of tax savings you can realize, it’s likely you can take an extra vacation or two. Which means you’ll go from strategies to maximize your tax brackets, to strategies that maximize your trunk space.