December 31 is the deadline for three tax decisions most retirees make by accident. Leave them to chance and you can lose a year of cheap Roth conversion room, pay 15% on gains you could have taken at 0%, or get a penalty notice in the spring.
I work through these every year, and it's easy to get them wrong in both directions. Too aggressive, and you pay Medicare surcharges or an underpayment penalty. Too cautious, and the cheap conversion room you didn't use is gone for good. I take each decision in its own article. Here's the short version.
The example throughout is the couple in WhenIm64's demo, the Morrisons. James is 66, retired and on Medicare. Linda is 62 and still working. They've converted $22,500 to a Roth so far this year, with $8,809 left for December.
Why the Order Matters
Gains come first, because a realized gain adds to your modified adjusted gross income (MAGI) just like a Roth conversion, and uses the same room under the IRMAA thresholds. The conversion comes second, sized to whatever room is left. The payment comes last, because by then you know what you owe.
1. Gains and Losses: Decide What to Sell First
- Harvest losses before December 31. Avoid the wash-sale rule: no repurchase within 30 days, including in your IRA.
- Check whether the 0% bracket is open. Long-term gains are tax-free while taxable income stays under $98,900 for married couples ($49,450 single). Conversions use that room up.
- Look up your funds' year-end distributions before you size anything else.
A $20,000 gain would use up the Morrisons' whole December conversion. If they converted anyway, James's 2028 Medicare surcharge would jump $1,835.
Read: Before December 31: Take Your Gains and Losses on Purpose
2. The Last Roth Conversion: Size It in December
- Your 2026 MAGI sets your 2028 Medicare premiums, measured against 2028 IRMAA thresholds, which will be higher than today's.
- Wait for the November IRMAA announcement. The 2027 thresholds are a safe floor for 2028.
- Recheck your MAGI after the conversion. Social Security taxation and the senior deduction phase-out both raise the real cost.
- 63 or 64? Your IRMAA clock is already running.
The Morrisons have $8,809 left to convert in December, which keeps them 5% under the 2028 threshold for the next IRMAA tier.