Capital Gains vs. Roth Conversions: Which Tax Move Packs a Smaller Punch?

If tax planning had an amusement park, the line for “Harvest Capital Gains or Do a Roth Conversion?” would still be the one where everyone reads the warning sign, shrugs, and gets in line anyway. Both strategies have their moments, both can save real money, and both can make your tax return a little spicier than you might prefer. The challenge in 2026 is figuring out which option leaves the lighter footprint.

Let’s walk through the thinking with updated income thresholds, clearer reasoning, and just enough humor to soften the edges.

Do You Need Income From Your Retirement Accounts?

Before comparing strategies, start with the most straightforward question: Do you actually need withdrawals from your retirement accounts?

If you will, then reducing future taxes becomes a priority. Roth conversions today can reduce required minimum distributions later, which might otherwise nudge you into higher tax brackets. And if you expect to leave retirement assets to your heirs, their future tax brackets matter too. Nothing says “I love you” like not surprising them with a tax problem.

If you won’t need those assets, then your primary goal becomes minimizing the tax you pay this year.

When Capital Gains Harvesting Makes the Most Sense

Long-term capital gains remain favorable in 2026 thanks to inflation adjustments. The 0% LTCG bracket reaches $49,450 for single filers and $98,900 for married couples filing jointly. If your taxable income stays within these ranges, you can harvest gains at a tax rate of zero. It’s a rare moment when the IRS essentially says, “Sure, go ahead.”

By comparison, Roth conversions in the 10% or 12% brackets are taxed at ordinary income rates. If you’re in those lower-income levels, harvesting gains is usually the lighter move.

There is one catch. If you receive Social Security, harvesting gains may push your combined income over $25,000 (single) or $32,000 (joint), making a portion of your benefits taxable. These thresholds never adjust for inflation, so they sit there waiting like a speed bump you forgot existed. Even so, capital-gains harvesting often remains the gentler strategy for lower-income households.

In the Middle Brackets, It Becomes a Toss-Up

Once you move into the 22% or 24% ordinary income brackets, the decision becomes less automatic.

Roth conversions can be appealing here because you’re converting at moderate rates and reducing the size of future taxable withdrawals. If you start the year with negative taxable income because deductions exceed income, conversions become especially powerful since they let you use deductions that would otherwise vanish.

Meanwhile, capital gains in these income ranges are usually taxed at 15%. That’s lower than the rate applied to Roth conversions, but gains still increase current taxable income. The choice depends on whether you want to reduce taxes now or reduce future taxes when distributions begin.

Higher Income Usually Favors Capital Gains Harvesting

If your taxable income puts you in the 32%, 35%, or 37% brackets, the winner becomes clearer. Roth conversions are taxed at those high rates. Capital gains, by contrast, are taxed at 15% until you reach $545,500 of taxable income as a single filer or $613,700 as a married couple. Above that, the rate rises to 20%.

Even at 20%, capital gains generally cost far less than converting IRA dollars at 32% or higher. It’s the tax equivalent of choosing between a gentle nudge and a shove off a diving board.

The 3.8% Net Investment Income Tax may apply if your income exceeds $200,000 (single) or $250,000 (joint), but even with that surcharge, harvesting gains usually remains the cheaper move at high income levels.

Charitable Intent and Legacy Planning Change the Equation

If you plan to donate appreciated securities to charity, or hold them until your passing, the capital gains may never be taxed. Gifts eliminate gains, and heirs typically receive a step-up in basis. In this case, harvesting gains becomes less valuable, and Roth conversions take on greater importance, especially if you’re trying to reduce future required distributions.

It’s similar to tidying up a dish you’re about to give away; the effort doesn’t produce much benefit.

Keep an Eye on 2026 IRMAA Thresholds

Your income in 2026 affects your Medicare premiums in 2028. The updated IRMAA thresholds begin at $109,000 for single filers and $218,000 for married couples. A large Roth conversion or an aggressive round of capital-gains harvesting could push you into higher Medicare Part B and D premiums. IRMAA is basically the boomerang of tax planning—sometimes it comes back around when you least expect it.

The Bottom Line for 2026

In lower-income brackets, capital gains harvesting typically has the least immediate tax impact. In the middle brackets, Roth conversions become more compelling, especially if you can use deductions or want to reduce future taxable withdrawals. At higher income levels, capital gains almost always win because they’re taxed far more gently than Roth conversions. Charitable giving and inheritance planning can flip the decision, making conversions the more strategic long-term move.

With thoughtful planning, you can reduce lifetime taxes, shape your retirement income more intentionally, and confidently choose the tax ride that jostles you the least.

WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen. 

Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.