Consider this scenario: The paychecks stop, Social Security hasn’t started or you’ve delayed it, and required minimum distributions (RMDs) are years away. For a stretch of years, your taxable income may be the lowest it has been since early in your career — and the lowest it may be for the rest of your life.
While this period can be a relief as you adjust to retirement, it’s also an opportunity with an expiration date. Retirement tax planning during these years can shape your financial picture for years to come. The decisions you make in this window can affect how much you keep, how much your heirs inherit, and how much you pay in Medicare premiums, known as the income-related monthly adjustment amount (IRMAA), and taxes for years to come.
Why the window exists and when it closes
Three income sources may eventually come to you after the window:
- Social Security can begin as late as age 70.
- RMDs start at 73 for those born before 1960 and 75 for those born in 1960 or later.
- A spouse’s benefits can add another layer of taxable income.
The window narrows by one year every year, and you have no way to reopen it.
Each year you wait to act is a year of lower tax brackets that you can’t get back. That’s what makes retirement tax planning during this stretch so valuable — it’s the one period where you have both lower income and full control over how much you recognize.
The widow’s penalty adds another layer to consider. When one spouse dies, the survivor generally files as single, with brackets roughly half as wide, on a similar amount of income. The 12% 2026 federal tax bracket extends to $100,800 of taxable income for joint filers but ends at $50,400 for a single filer. That makes the joint-filing years more valuable than they look — and it makes retirement tax planning during those years more urgent.
Opportunities in the window
Three tax planning decisions can help you take advantage of this low-income stretch. Each one can work best when your taxable income is at its lowest.
1. Starting Roth conversions
This can be helpful for filling a low bracket deliberately rather than accepting a higher one later. With this opportunity, you’re not postponing the tax, you’re choosing the year and the rate. A Roth conversion moves pretax IRA or 401(k) dollars into a Roth IRA, where future growth and qualified withdrawals come out tax-free — which can substantially lower RMDs during your lifetime.
2. Realizing long-term capital gains
Tax rates on long-term capital gains depend on your taxable income. In 2026, married couples filing jointly with taxable income of up to $98,900 may qualify for a 0% federal tax rate on long-term capital gains. As a result, a lower-income year can present an opportunity to reduce a concentrated stock position more tax efficiently. By strategically realizing gains when your income is lower, you may be able to improve cash flow or diversify your portfolio without incurring federal capital gains tax.
3. Sequencing withdrawals
The accounts you withdraw from can have a significant impact on your taxable income and, in turn, how much room remains for the two strategies above. Spending from taxable or Roth accounts first may help keep taxable income lower, potentially creating additional opportunities for Roth conversions and capital gain harvesting. Over time, the order in which you take retirement withdrawals can be an important tax-planning decision, with benefits that may compound year after year.
The complication of Medicare premiums
Medicare bases your premium surcharge on income from two years prior. A Roth conversion this year shows up as part of your Medicare premium bill two years later. Your 2026 tax return impacts the 2028 amounts you pay for Medicare Part B and D premiums.
IRMAA operates as a cliff, not a slope. One dollar over a threshold moves the entire surcharge tier. For 2026, the first IRMAA threshold for joint filers is $218,000 of modified adjusted gross income. Cross it by a dollar, and the combined Part B and Part D surcharge can add roughly $1,148 per person annually.1
A Roth conversion isn’t a qualifying life-changing event for a Medicare appeal, unlike retiring itself. That means the surcharge sticks — and it can turn a well-intentioned conversion into an expensive surprise.
Other guardrails
- Health insurance subsidies before 65: A conversion counts as income, and income can erase a premium tax credit. This matters for anyone who retires before Medicare eligibility.
- State taxes: Each state treats conversions differently, so factor your state’s rules into the tax calculations.
- Cash to pay the tax: The conversion works best when you can pay the tax bill from outside the converted account itself, so the full conversion amount can grow tax-free.
The generational comparison
The SECURE Act ended the stretch IRA for most nonspouse beneficiaries. In general, inherited traditional IRAs must be fully distributed within 10 years. If the original owner had already begun taking RMDs, the beneficiary may also need to take annual RMDs during that 10-year period before fully emptying the account.
That compresses a lifetime of taxable withdrawals into 10 years for most beneficiaries — and those 10 years usually land squarely in a child’s peak earning decade. The comparison isn’t your rate today against your rate at 80. It’s your rate today against your daughter’s rate at 52.
A Roth IRA left to heirs faces the same 10-year clock, but the distributions are tax-free. Converting now can change what your family inherits later, and that makes retirement tax planning a generational decision, not just a personal one.
Integrated strategies across your financial picture
This window touches more than just your taxes. Coordinating across disciplines can help you make the most of your full financial picture:
- Tax planning: A multiyear projection, not a one-year decision, is the aim with tax planning. Model your future income, brackets, and IRMAA thresholds together so each conversion can land where you want it.
- Investment management: What you convert matters, as does where the tax bill comes from. Converting assets that are temporarily depressed can capture more shares per tax dollar.
- Estate planning: A Roth IRA left to heirs is a different inheritance than a traditional IRA. Review beneficiary designations and trust structures alongside your conversion plan. Also remember to review life insurance beneficiary designations regularly.
- Insurance and health: A pretax-heavy balance sheet with a traditional 401(k) or IRA may make a care event more expensive, because every dollar of care requires a taxable withdrawal. Planning ahead can help reduce that extra cost, if long-term care isn’t part of your insurance plan.
The bottom line
The lowest-tax window of your lifetime is typically open during the gap between retiring and collecting Social Security and RMDs. It won’t stay open. Retirement tax planning during these gap years is about more than saving on this year’s bill — it’s about shaping what you keep, what your family inherits, and what you pay in Medicare premiums for years to come.
At Mercer Advisors, we can help you build a coordinated plan before the window closes. We offer a unified team that integrates financial planning, tax planning and preparation, investment management, estate planning, and insurance solutions.
FAQs
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The retirement tax gap window is the period between when you stop working and when required minimum distributions (RMDs) begin at age 73 (or 75 if you were born in 1960 or later). During these years, your taxable income may be at its lowest because paychecks have stopped, Social Security may be delayed, and RMDs haven’t started. This provides a method to manage taxes proactively through Roth conversions, capital gains harvesting, and strategic withdrawal sequencing.
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A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the converted amount in the year of the conversion, but future growth and qualified withdrawals come out tax-free. During the pre-RMD years, your lower taxable income may mean you pay a lower rate on the conversion than you would when RMDs and Social Security add to your income later.
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For many retirees with significant pre-tax savings, converting before RMDs begin can make sense because you have more control over how much income to recognize each year. As soon as RMDs start, you must take your full required distribution before converting any additional amount, which may shrink your conversion headroom. A multiyear tax projection can help you decide how much to convert and when.
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It can be. In 2026, married couples filing jointly with taxable income up to $98,900 pay 0% federal tax on long-term capital gains. If your income is low during the pre-RMD years, you may be able to sell appreciated assets and reset your cost basis without triggering a federal tax bill. This strategy can work best when coordinated with your overall retirement tax plan.
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A Mercer Advisors integrated team can review your full financial picture and build a multiyear conversion strategy. You can schedule a complimentary consultation with us to discuss your situation.
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You can find the current brackets on the Social Security Administration’s IRMAA page. Your Medicare IRMAA surcharge is based on your modified adjusted gross income from two years prior; for 2026, the first threshold for joint filers is $218,000. A tax professional can help you model how a conversion might affect your premiums two years down the line.
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A regular IRA withdrawal is taxable as ordinary income and reduces your account balance, while a Roth conversion moves the balance to a Roth IRA where it can grow tax-free. With a withdrawal, the money leaves your retirement accounts entirely. With a conversion, the money stays invested — it just changes accounts and tax treatment. You may owe tax on both, but the conversion preserves the assets for future tax-free growth.
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Under the SECURE Act, most nonspouse heirs must empty an inherited IRA within 10 years. With a traditional IRA, those distributions are taxable — and they often land during the heir’s peak earning years. With a Roth IRA, the same 10-year clock applies, but distributions are tax-free. Converting to Roth before you pass can leave your family a very different inheritance.
1 “2026 Medicare Parts A & B Premiums and Deductibles.” Centers for Medicare & Medicaid Services, Nov. 14, 2025.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All investment strategies have the potential for profit or loss.
For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All Estate planning document preparation and other legal advice are provided through select third parties, with which Mercer Advisors has a contractual relationship. Tax preparation and filing services are provided by Mercer Advisors Tax Services, LLC. Clients will sign a separate agreement when engaging Mercer Advisors Tax Services that defines the services provided and any additional fees that may apply. Insurance products are provided by Mercer Advisors Insurance Services, LLC (MAIS), which places individual life, disability, long term care coverage, and property and casualty coverage through select insurance companies. Trustee services are offered through select third parties with which a client would sign an additional
