Filling the Bracket: The Retirement Tax Strategy Most People Miss

Key takeaways

Each year's unused low-bracket room expires on December 31; it does not carry forward.
In 2026, the 12% bracket for joint filers ends at $100,800 of taxable income and the 22% bracket at $211,400, after a $32,200 standard deduction.
Fill the target bracket with IRA withdrawals or Roth conversions, then stop; the cost of going over is the next bracket plus IRMAA, Social Security taxation, and capital gains stacking.
The strategy runs from retirement to the start of RMDs and is worth the most to people with large tax-deferred balances.

Retirement produces a strange tax situation. A couple who paid 32% on their income for twenty years retires, stops drawing a salary, and suddenly has $40,000 of taxable income and a 12% bracket. They feel good about the small tax bill. Meanwhile their $2 million IRA keeps compounding, and at 73 the required distributions land on top of Social Security in the 24% bracket, permanently. The low-bracket years were a resource. They let it expire.

Use it or lose it

Tax brackets are annual. The room in the 12% bracket this year can't be used next year. If your taxable income is $40,000 and the 12% bracket ends at $100,800 (joint filers, 2026), you have $60,800 of capacity to recognize income at 12% that vanishes on December 31. Recognizing that income later, when it'll be taxed at 22% or 24%, is a choice to pay more.

Bracket management means deciding each year which bracket to fill, filling it with income whose timing you control, and stopping there.

The income you control

In retirement, most income is discretionary in timing.

Traditional IRA and 401(k) withdrawals taken beyond what spending requires, with the excess reinvested in a taxable account.
Roth conversions, which recognize income now in exchange for tax-free growth forever and no future RMDs.
Capital gains realized by choice.
Deferred compensation payouts and pension start dates, where elections allow.
Social Security timing, which sets when a large fixed income begins.

Withdrawals and conversions are the workhorses. Between them, a retiree can set taxable income at almost any level they want in any year before RMDs begin.

Choosing the bracket

The target bracket depends on the rate you expect to face later. For most of our clients, "later" means the years after 73 with RMDs and Social Security both flowing, and for a surviving spouse it means filing single with roughly half the bracket width.

If later income will land in the 22% bracket, fill the 12% bracket every year without a second thought, and consider filling 22% too, since it's a wash on rate and buys Roth flexibility.
If later income will land in the 24% bracket or above, filling both the 12% and 22% brackets is clearly worthwhile, and going into 24% is roughly neutral.
Filling the 32% bracket is rarely right unless the estate will pass to heirs in high brackets or the tax-deferred balance is very large.

The 2026 brackets for joint filers: 10% to $24,800, 12% to $100,800, 22% to $211,400, 24% to $403,550, all of taxable income after the $32,200 standard deduction. For single filers: 10% to $12,400, 12% to $50,400, 22% to $105,700, 24% to $201,775, after $16,100.

The edges that aren't brackets

This needs a projection rather than a rule of thumb because several other thresholds sit inside the bracket ranges and behave like cliffs.

Social Security taxation. In the range where provisional income moves the taxable share of benefits from 0% to 85%, the effective marginal rate on an IRA withdrawal can hit 22% in the 12% bracket and 40% in the 22% bracket. The tax torpedo means the real bracket edges aren't where the table says they are.

Capital gains stacking. Ordinary income fills the brackets first; long-term gains sit on top. Filling the 12% bracket with conversions pushes gains that would have been taxed at 0% into 15%, since the 0% rate ends at $98,900 of joint taxable income. The capital gains brackets have to be in the same calculation.

IRMAA. From age 63, income sets Medicare premiums two years later, and the first tier starts at $218,000 of joint modified AGI in 2026. A conversion that fills the 22% bracket may or may not cross it; the IRMAA tiers are secondary bracket edges.

ACA subsidies before 65, where the subsidy cliff at 400% of poverty can cost far more than the bracket saves.

The senior deduction ($6,000 per person over 65, 2025 through 2028), which phases out above $150,000 of joint MAGI.

The net investment income tax above $250,000 of joint AGI.

The calendar

Bracket management is a December exercise built on a year of preparation. Early in the year, project the income that's coming no matter what: pensions, Social Security, interest, dividends, required distributions. Through the year, track realized gains and anything unusual. In late November or December, with the numbers firm, compute the room to the target edge and execute: the IRA withdrawal, the conversion, the gain harvest, with withholding set to cover the tax. Then next January, start over.

Conversions and withdrawals can't be undone after December 31, which is why we do them late in the year rather than early, unless a market decline in the spring makes converting at lower prices worth committing sooner.

Who it's worth the most to

The value scales with the size of the tax-deferred balance and the length of the window. A couple retiring at 60 with $2.5 million in IRAs has thirteen years to fill brackets before RMDs, and the difference between doing it and not can be several hundred thousand dollars of lifetime tax, plus lower Medicare premiums and a smaller tax bill for their children. A couple with $300,000 in IRAs and a pension already in the 22% bracket has little room and little to gain.

How we run it

Every client's projection has the bracket edges, the Social Security phase-in, the capital gains stack, the IRMAA tiers, and the NIIT threshold on one page, for this year and each year through the survivor's life expectancy. The target for the year gets chosen against all of them. Then the trades and transfers happen, because tax planning and the accounts sit with the same advisor. None of this is complicated. It just requires someone to look, every year, before the room expires.

Frequently asked questions

Should I withdraw or convert to fill the bracket?

Withdraw what you need to spend; convert the rest. Both recognize the same income, but converted dollars keep growing tax-free, while withdrawn dollars sitting in a taxable account generate future taxable income.

What if I have no low-bracket years?

A retiree with a large pension and Social Security may start retirement already in the 22% or 24% bracket. Then the question is whether later rates will be higher still (a surviving spouse's, or heirs'), and the target may be the top of the 24% bracket. Same logic, different numbers.

Does filling the bracket raise my Medicare premium?

It can, from age 63 onward. The projection shows whether the target bracket edge or the IRMAA tier comes first, and the lower of the two is usually where you stop.

What about state taxes?

Florida has none, which makes every dollar recognized here cheaper than in most states. Retirees who may move out of Florida should fill brackets aggressively while they're still resident.

Joseph G. Valerio, CFP®, EAFounder and Lead Advisor at Valerio Wealth Management, a fee-only, fiduciary virtual family office in Miami, Florida. One advisor, credentialed in both financial planning and federal tax. About Joseph

This article is general education, not individualized advice, and it is not tax, legal, or accounting advice. Figures reflect federal law for the year stated and can change. Valerio Wealth Management does not prepare or file tax returns. Speak with a qualified professional about your own situation before acting.