Investment Tax Planning for 2026: How Income Stacks, Roth Conversions, IRMAA, and the Hidden Rates Between Brackets

Most investment tax advice covers single moves: harvest losses, hold for more than a year, keep bonds in your IRA. The larger savings usually come from planning when income shows up across many years. The same $100,000 of IRA money can be taxed at 12% in one year and more than 30% in another, depending on what else is on the return and which thresholds it crosses.

This guide covers how investment income stacks on the rest of your income under 2026 law, the thresholds where rates jump, a worked Roth conversion example showing where the hidden rates sit, and a calendar for the year. Our capital gains guide covers selling decisions in detail, and the tax-loss harvesting guide covers using losses.

The 2026 thresholds that matter

The brackets, standard deductions, and capital gains thresholds come from Rev. Proc. 2025-32. The senior deduction, added by the One Big Beautiful Bill Act for 2025 through 2028, is reduced by 6% of modified AGI above the threshold for each $6,000 amount (26 U.S.C. 151(d)(5)), so a couple who both qualify lose $0.12 of deduction for each dollar over $150,000. The IRMAA figures are from the CMS 2026 premium fact sheet; 2026 premiums are based on 2024 income.

How investment income stacks

Ordinary income (wages, interest, IRA withdrawals, Roth conversions, short-term gains) fills the brackets first. Qualified dividends and long-term capital gains sit on top of it and get the 0%, 15%, or 20% rate depending on where they land. Two consequences follow.

• Adding ordinary income can raise the tax on gains you already had. If your dividends sit in the 0% zone, each extra dollar of ordinary income above that point is taxed at its own rate and also moves a dollar of dividends into the 15% rate.
• Several benefits are tied to modified AGI rather than taxable income, including the senior deduction, IRMAA, the net investment income tax, and premium tax credits for marketplace health insurance. A deduction that lowers taxable income but not AGI doesn't help with these.

A Roth conversion example

A married couple, both 67, retired, delaying Social Security until 70. Their taxable account produces $10,000 of interest and $30,000 of qualified dividends a year, and they have a large traditional IRA. Their required minimum distributions start at 73 (IRS RMD FAQs), and at that point RMDs plus Social Security will push them into higher brackets for the rest of their lives. The years from 67 to 72 are their window to convert at lower rates.

Their deductions in 2026 are the $32,200 standard deduction, $3,300 of extra standard deduction for age, and up to $12,000 of senior deduction, so with no conversion they owe no federal income tax. Here is what each additional slice of conversion costs in federal tax (2026 law, no state tax, illustration only):

Three things stand out.

• The band just above $106,400 is the most expensive in the table, even though the couple is still "in the 12% bracket." Converting into the 22% bracket costs less per dollar than that band.
• A conversion of $178,000 brings modified AGI to $218,000, the first IRMAA threshold at 2026 levels. Going over by a dollar would raise their Medicare premiums two years later by $81.20 a month for Part B and $14.50 for Part D, each, or about $2,297 a year for the couple. The thresholds are indexed, so check the current figures when you convert.
• Whether any of this is worth doing depends on the rate the money would otherwise face. If RMDs plus Social Security will put them in the 24% bracket with dividends taxed at 15%, converting at an average of 13% to 15% now saves money. If they expect to spend down the IRA in low-bracket years, or leave it to heirs in low brackets, converting less makes sense.

Two practical points. A conversion can't be undone, so many people wait until late in the year when their income is clear. Paying the tax from the taxable account, not from the IRA, leaves more in the Roth. Our retirement income guide covers withdrawal order and Social Security timing.

Other levers during the year

• Qualified charitable distributions. From age 70½, you can give up to $111,000 in 2026 directly from an IRA to charity (IRS Notice 2025-67). The money is excluded from income, which lowers AGI and helps with IRMAA and the senior deduction, and it counts toward your RMD. Our philanthropy guide compares this with giving appreciated shares.
• Gain harvesting. In years when taxable income is below the top of the 0% rate, selling appreciated shares and buying them back resets your cost basis at no federal tax. The wash sale rule applies only to losses.
• Fund distributions. Mutual funds announce estimated capital gains distributions in the fall. Buying a fund in a taxable account just before a distribution means paying tax on gains you did not earn.
• Social Security taxation. Once benefits start, up to 85% of them become taxable when provisional income (AGI excluding the benefits, plus tax-exempt interest, plus half the benefits) passes $32,000 for couples and $25,000 for single filers, then $44,000 and $34,000 for the 85% level. These thresholds have never been indexed, so conversions done before benefits start avoid a layer of tax that later IRA withdrawals would add.
• Estimated tax. A large conversion or sale can create an underpayment penalty. You generally avoid it by paying at least 100% of last year's tax through withholding and estimates, or 110% if last year's AGI was over $150,000 (IRS Topic 306). Tax withheld from an IRA distribution is treated as paid evenly through the year, even if it is withheld in December.
• IRMAA appeals. If your income dropped because you stopped working or another listed life event, you can ask Social Security to use a more recent year's income with Form SSA-44.

Asset location in brief

Holding bonds, REITs, and high-turnover funds in IRAs and 401(k)s, and broad stock index funds and municipal bonds in taxable accounts, usually lowers the tax on the same mix. Roth accounts are best used for the assets you expect to grow the most, since that growth is never taxed. Our tax-efficient investing guide covers placement rules in detail, and our REIT guide shows why REIT dividends belong in tax-advantaged accounts.

A planning calendar

State taxes can change the answer. Some states tax capital gains as ordinary income, a few have no income tax, and Washington has a separate tax on large long-term gains. If you plan to move, the timing of conversions and large sales relative to the move can matter more than anything in the federal table. Our estate planning guide covers the step-up in basis at death, which is a reason some investors keep their most appreciated shares rather than selling them.

This guide is for informational purposes only and does not constitute tax or investment advice. Figures reflect 2026 federal law as of September 2026; the conversion example is an illustration that ignores state taxes, and thresholds change each year. Consult a CPA or other qualified tax professional before converting retirement savings or realizing large gains.