A Roth conversion and long-term capital gains interact because the taxable part of the conversion is ordinary income that fills your tax brackets first, and your capital gains then stack on top of it, which can push gains that would have been taxed at 0% into the 15% or 20% band. Understanding that stacking order is the core of coordinating the two in a given tax year.
A Roth conversion is ordinary income (IRS Pub 590-B, 2025) and stacks below long-term capital gains and qualified dividends, which are taxed at 0%, 15%, or 20% based on total taxable income. In 2026 the 0% rate ends at $98,900 taxable income for married filing jointly and $49,450 for single filers (Rev. Proc. 2025-32). A conversion that fills that space can lift otherwise-0% gains into the 15% bracket.
How Roth conversion income and capital gains share the same bracket space
Ordinary income is taxed first, and long-term capital gains and qualified dividends are calculated on top of it. The taxable portion of a Roth conversion counts as ordinary income, so it occupies the lower brackets before your preferential-rate income is measured. That ordering is set by the Qualified Dividends and Capital Gain Tax Worksheet used for Form 1040, line 16 (Source: IRS Topic No. 409; 2025 Instructions for Form 1040).
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The practical result is a competition for the same slice of bracket room. In a low-income “gap year” before required minimum distributions or Social Security begin, a household may have space beneath the 0% capital gains ceiling. A Roth conversion and a capital gain harvest both want to use that space, and the dollars a conversion consumes are dollars no longer available at the 0% gains rate.
Because the conversion sits underneath, it does not receive preferential rates itself. It is taxed in the ordinary brackets and, by raising taxable income, it moves the starting point at which your gains are measured (Source: IRS Pub 590-A, 2025; Instructions for Form 8606, 2025). This is the mechanism behind the phrase “roth conversion capital gains” stacking.
Why a conversion can turn 0% gains into 15% gains
Long-term gains are only 0% while total taxable income stays at or below the zero-rate ceiling. When a Roth conversion adds ordinary income, it raises total taxable income, and any gains sitting above the new, higher total are taxed at 15% instead of 0% (Source: IRS Topic No. 409). The gain did not change; the income beneath it did.
For a married-filing-jointly household in 2026, the 0% ceiling is $98,900 of taxable income and the 15% band runs to $613,700 (Source: Rev. Proc. 2025-32, section 4.03). A $40,000 conversion in a year with $50,000 of other taxable income leaves roughly $8,900 of 0% gain room instead of $48,900, so additional gains fall into the 15% bracket.
2026 capital gains breakpoints that govern the coordination decision
The 0%, 15%, and 20% long-term capital gains rates are set by taxable-income breakpoints that change each year. For 2026 they come from Rev. Proc. 2025-32. These thresholds define exactly how much combined room exists for conversion income and gains before the next rate tier begins.
| Filing status (2026) | 0% rate up to | 15% rate up to | 20% rate above |
|---|---|---|---|
| Married filing jointly / surviving spouse | $98,900 | $613,700 | $613,700 |
| Single | $49,450 | $545,500 | $545,500 |
| Head of household | $66,200 | $579,600 | $579,600 |
| Married filing separately | $49,450 | $306,850 | $306,850 |
| Estates and trusts | $3,300 | $16,250 | $16,250 |
Source: IRS Rev. Proc. 2025-32, section 4.03 (2026 maximum capital gains rate amounts).
These are taxable-income figures, measured after deductions, not gross income. Both the conversion and the gains count toward the same taxable-income total that is compared against each ceiling, which is why they cannot be planned in isolation.
How the 2025 breakpoints compare
The 2025 breakpoints are lower, so a taxpayer completing a conversion in 2025 has slightly less 0% room than in 2026. For 2025 the 0% ceiling is $96,700 for married filing jointly and $48,350 for single filers, with the 15% band running to $600,050 and $533,400 respectively (Source: IRS Topic No. 409; Rev. Proc. 2024-40).
| Filing status | 2025 0% ceiling | 2026 0% ceiling |
|---|---|---|
| Married filing jointly | $96,700 | $98,900 |
| Single | $48,350 | $49,450 |
| Head of household | $64,750 | $66,200 |
Sources: IRS Topic No. 409 and Rev. Proc. 2024-40 (2025); Rev. Proc. 2025-32 (2026).
Prioritizing between a conversion and 0% gain harvesting in a gap year
When bracket room is limited, a household generally cannot both convert to a Roth and harvest gains at 0% up to the full ceiling, because both draw on the same taxable-income budget. Deciding which to prioritize depends on the relative value of Roth space versus a permanent basis step-up on the gains, and neither choice is universally better. The rules allow either, and the tradeoff is specific to each situation.
One framing many planners use is to first estimate the taxable-income “room” beneath the 0% capital gains ceiling for the year, then decide how to allocate it. A dollar used for a Roth conversion is taxed at the ordinary rate on that dollar; a dollar used to harvest a long-term gain within the 0% band is taxed at 0% and resets cost basis higher.
- Project baseline taxable income before any conversion or harvest, including interest, dividends, pensions, and any wages.
- Measure the gap between that baseline and the 0% capital gains ceiling for the filing status (for example, $98,900 for married filing jointly in 2026, per Rev. Proc. 2025-32).
- Value the alternatives: a conversion moves money into a Roth at today’s ordinary rate, while a 0% harvest locks in tax-free gain and a higher basis but adds no Roth balance.
- Check the next-tier cost: filling the gap with conversion income means additional gains spill into the 15% bracket, so quantify how many gain dollars would be repriced.
- Account for future years: required minimum distributions, a surviving-spouse filing change, and inheritance timelines all shift which option carries more long-run value.
The gap that this analysis fills, and the reason many single-topic articles miss it, is the head-to-head prioritization: most guides explain 0% harvesting or Roth conversions separately, but the harder question is which one to fund when the same bracket space can only be used once. A Roth conversion and a gain harvest are substitutes for that space, not independent moves.
The Roth conversion is ordinary income, not a capital gain
A conversion of a traditional IRA to a Roth IRA is included in gross income for the year received and is taxed in the ordinary-income brackets, not at capital gains rates (Source: IRS Pub 590-A and Pub 590-B, 2025). The taxable amount is reported through Form 8606 and flows to Form 1040 line 4b (Source: Instructions for Form 8606, 2025). It never qualifies for the 0%, 15%, or 20% preferential rates.
This distinction matters because it explains why the conversion sits beneath your gains rather than beside them. Ordinary income, including converted amounts, is stacked first, and only genuine long-term capital gains and qualified dividends receive the preferential treatment (Source: IRS Topic No. 409).
There is also no income limit on Roth conversions. The pre-2010 $100,000 MAGI cap was permanently repealed, so conversions are available at any income level, unlike Roth contributions, which remain subject to income phase-outs (Source: IRS Notice 2025-67 context; Pub 590-A, 2025).
How a conversion can trigger the 3.8% Net Investment Income Tax on your gains
The Roth conversion itself is not net investment income, because distributions from IRAs and qualified plans are excluded from the 3.8% Net Investment Income Tax (Source: IRS Questions and Answers on the Net Investment Income Tax). The conversion cannot be taxed by NIIT directly. It can still cause NIIT indirectly by raising modified adjusted gross income.
NIIT applies 3.8% to the lesser of net investment income or the amount by which MAGI exceeds a fixed threshold: $250,000 for married filing jointly, $200,000 for single and head of household, and $125,000 for married filing separately (Source: IRS Topic No. 559; NIIT Q&A). These thresholds are statutory and are not indexed for inflation.
Because a conversion increases MAGI, it can lift MAGI above the threshold and thereby expose your other net investment income, such as capital gains and dividends, to the 3.8% tax even though the conversion dollars themselves are exempt. For deeper mechanics, see the Q3 Advisors overview of the Net Investment Income Tax for 2026.
Medicare IRMAA: a conversion today can raise premiums two years later
A Roth conversion raises MAGI, and Medicare uses MAGI to set income-related monthly adjustment amounts (IRMAA) for Part B and Part D. Because IRMAA uses a two-year lookback, a conversion completed today can raise premiums two years later (Source: SSA POMS HI 01101.020). The standard 2026 Part B premium is $202.90 per month (Source: medicare.gov Publication 11579).
| 2026 MAGI, single | 2026 MAGI, married filing jointly | Part B monthly | Part D add-on |
|---|---|---|---|
| ≤ $109,000 | ≤ $218,000 | $202.90 (standard) | $0.00 |
| > $109,000 to $137,000 | > $218,000 to $274,000 | $284.10 | +$14.50 |
| > $137,000 to $171,000 | > $274,000 to $342,000 | $405.80 | +$37.50 |
| > $171,000 to $205,000 | > $342,000 to $410,000 | $527.50 | +$60.40 |
| > $205,000 to < $500,000 | > $410,000 to < $750,000 | $649.20 | +$83.30 |
| ≥ $500,000 | ≥ $750,000 | $689.90 | +$91.00 |
Sources: SSA POMS HI 01101.020 (2026 IRMAA tiers, based on 2024 return); medicare.gov Pub 11579 (standard 2026 Part B premium). IRMAA tiers use 2024 MAGI, or 2023 if 2024 is unavailable.
The interaction with capital gains is direct: gains you harvest in the same year as a conversion also raise MAGI, so a coordinated year can cross an IRMAA tier that either move alone would not. Q3 Advisors maintains a breakdown of the 2026 Medicare IRMAA brackets and premiums.
A worked example of the stacking order
Consider a married-filing-jointly household in 2026 with $60,000 of taxable income before any gains or conversion, planning around the $98,900 zero-rate ceiling (Source: Rev. Proc. 2025-32). The example below shows how the same $30,000 long-term gain is taxed differently depending on whether a $30,000 conversion is added underneath it.
| Scenario (2026 MFJ) | Ordinary income | Long-term gain | 0% gain room used | Gain taxed at 15% |
|---|---|---|---|---|
| No conversion | $60,000 | $30,000 | $30,000 (all fits under $98,900) | $0 |
| $30,000 conversion added | $90,000 | $30,000 | $8,900 | $21,100 |
Illustration using 2026 breakpoints from Rev. Proc. 2025-32; figures are hypothetical and for education only.
In the first row the full $30,000 gain fits beneath the ceiling and is taxed at 0%. In the second row the conversion raises ordinary income to $90,000, leaving only $8,900 of room, so $21,100 of the same gain is taxed at 15%. The gain never changed; the ordinary income stacked beneath it did.
Where Roth assets change the future picture
Qualified withdrawals from a Roth IRA are not counted in taxable income or MAGI, so in later years Roth balances can help keep taxable income beneath the 0% capital gains ceiling and below NIIT and IRMAA thresholds. That is one reason the timing of a Roth conversion is often weighed against its bracket, NIIT, and IRMAA cost in the conversion year (Source: IRS Pub 590-B, 2025). This is education, not a recommendation.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
Does a Roth conversion count as a capital gain?
No. A Roth conversion is ordinary income, not a capital gain, and it is reported through Form 8606 to Form 1040 line 4b (Source: Instructions for Form 8606, 2025; IRS Pub 590-B, 2025). It is taxed in the ordinary-income brackets and never qualifies for the 0%, 15%, or 20% preferential long-term capital gains rates that apply to gains and qualified dividends.
Can a Roth conversion push my capital gains into a higher tax rate?
Yes. Ordinary income, including a conversion, stacks first, and long-term gains are measured on top of it (Source: IRS Topic No. 409). By raising taxable income, a conversion can push gains that would have been taxed at 0% into the 15% band, or from 15% toward 20%, once income crosses the relevant 2026 breakpoint (Source: Rev. Proc. 2025-32).
Should I do a Roth conversion or harvest capital gains at 0% in the same year?
The rules allow either, but both draw on the same bracket room beneath the 0% ceiling, so in a low-income year a household often cannot maximize both (Source: IRS Topic No. 409; Rev. Proc. 2025-32). One approach is to compare the ordinary-rate cost of converting against the value of a tax-free gain and higher basis. The right balance depends on individual circumstances.
Is a Roth conversion subject to the 3.8% Net Investment Income Tax?
The conversion itself is not, because IRA and qualified-plan distributions are excluded from net investment income (Source: IRS Net Investment Income Tax Q&A). However, a conversion raises MAGI, and if MAGI crosses the fixed threshold, $250,000 for married filing jointly or $200,000 for single filers, your other investment income such as capital gains may become subject to the 3.8% tax.
Do capital gains raise my income for a Roth conversion the same way conversions raise it for gains?
Yes, the interaction runs both directions. Long-term gains and qualified dividends are part of taxable income and MAGI, so harvesting gains in a conversion year raises the totals used for capital gains breakpoints, NIIT thresholds, and Medicare IRMAA tiers (Sources: IRS Topic No. 409; NIIT Q&A; SSA POMS HI 01101.020). Coordinating the two amounts in one year affects all three at once.
Is there an income limit that stops high earners from doing a Roth conversion?
No. The pre-2010 $100,000 MAGI limit on conversions was permanently repealed, so a Roth conversion is available at any income level (Source: IRS Pub 590-A, 2025). Roth contributions still face income phase-outs, but conversions do not. Higher income does raise the odds that conversion income interacts with the 15% or 20% gains bands, NIIT, and IRMAA.
Sources
IRS Topic No. 409, Capital Gains and Losses: https://www.irs.gov/taxtopics/tc409
IRS Rev. Proc. 2025-32 (2026 capital gains rate amounts): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
IRS Rev. Proc. 2024-40 (2025 amounts): https://www.irs.gov/pub/irs-drop/rp-24-40.pdf
IRS Publication 590-A (2025), Contributions to IRAs: https://www.irs.gov/publications/p590a
IRS Publication 590-B (2025), Distributions from IRAs: https://www.irs.gov/publications/p590b
IRS Instructions for Form 8606 (2025): https://www.irs.gov/instructions/i8606
IRS 2025 Instructions for Form 1040 (line 16 worksheet): https://www.irs.gov/instructions/i1040gi
IRS Questions and Answers on the Net Investment Income Tax: https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax
IRS Topic No. 559, Net Investment Income Tax: https://www.irs.gov/taxtopics/tc559
SSA POMS HI 01101.020 (2026 IRMAA tiers): https://secure.ssa.gov/poms.nsf/lnx/0601101020
medicare.gov Publication 11579 (2026 Medicare costs): https://www.medicare.gov/publications/11579-medicare-costs.pdf
IRS Notice 2025-67 (2026 retirement-plan limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf
