Quick reading
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$145,000 of annual spending withdrawn tax-free accumulates $32,300 401(k) plus $90,000 brokerage earnings within the 0% LTCG range plus $22,700 Roth.
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Defer Social Security until age 70 to protect standard deduction space and avoid inclusion of 85% of benefits; Check the IRMAA threshold of $218,000 in January annually.
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A married couple, ages 64 and 65, retired last year with $2.4 million split between a traditional 401(k), a Roth IRA and a taxable brokerage account. They spend $145,000 a year. Your federal income tax bill is zero. The structure consists of three tax buckets emptied in the order in which the code effectively rewards, executed in the narrow margin between retirement and Social Security at age 70.
The three cube configuration
Their balances: $1.1 million in a traditional 401(k), $700,000 in a Roth IRA with the five-year term completed, and $600,000 in a taxable brokerage with a cost basis of $360,000 and $240,000 in long-term built-in gains. Social Security is deferred until age 70, which is the only reason this works. No Social Security means no provisional income calculation, no 85% inclusion trap, and no full use of the standard deduction against ordinary income.
Two numbers will do the heavy lifting in 2026. With both spouses age 65 or older, the MFJ standard deduction approaches $32,300. The 0% long-term capital gains bracket for MFJ filers amounts to approximately $96,700 of taxable income. If you stack the withdrawals against those two maximum limits, the math falls into place.
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The withdrawal sequence that produces zero
Step one: Withdraw $32,300 from the 401(k). That affects the return as ordinary income, then the standard deduction erases it. Ordinary federal tax due: $0. The couple is also depleting the pre-tax bucket while they can do it for free, reducing the balance that will eventually push required minimum distributions to 75.
Step two: sell $90,000 in brokerage positions. Approximately 60% of each lot is basis that returns tax-free; the rest is long-term profit. Put it on the return: $32,300 of ordinary income plus $90,000 of long-term gains equals $122,300 of taxable gross income. Subtract the standard deduction of $32,300 and taxable income falls to $90,000, falling completely within the 0% LTCG band. Capital gains tax due: $0.
Step Three: Take $22,700 from the Roth IRA. After 59.5, with the five-year clock clear, every dollar is tax-free and never appears on Form 1040. Add the three buckets: $32,300 plus $90,000 plus $22,700 equals $145,000. Federal tax: $0.
Why the window closes at 70
This sequence runs cleanly until Social Security begins. At age 70, benefits approach their maximum, and a portion becomes taxable by the time provisional income crosses the threshold. The ordinary income layer also changes: Social Security pushes against the standard deduction, leaving less room for 401(k) withdrawals before the 0% LTCG ceiling is breached.
The biggest trap is IRMAA. The first level of Medicare surcharge for MFJ taxpayers is approximately $218,000 MAGI in 2026, and the look back is two years. A 2026 Roth conversion appears in 2028 Medicare premiums. With the CPI at 330.3 in March 2026 and inflation at the 90th percentile of historical readings, those support and threshold numbers will continue to drift. Check them every January on IRS.gov and CMS.gov instead of working from memory last year.
The years of conversion hidden within the plan
In any year in which the couple defers brokering, the 0% LTCG cap becomes a gap for Roth conversions. Convert the traditional 401(k) to about $96,700 of taxable income, pay the ordinary 10% and 12% brackets on the conversion, and the tax cost is still significantly less than what RMDs will trigger after age 75, once Social Security is also taxable. Every dollar that moves now is a dollar that won’t push MAGI off the IRMAA cliff later.
What to do this week
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Confirm your numbers with the 2026 IRS schedules. Get the actual MFJ standard deduction with both spouses over 65 and the exact 0% LTCG maximum limit from IRS.gov. The figures used here are accurate for 2026, but are reset annually for inflation.
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Map your base lot by lot. The brokerage step only works if you can identify which stocks have each cost. Use the specific lot ID in the broker, not the average cost, so you can mark the profit realization to the dollar.
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Model the 70-year-old version of your comeback now. Social Security Project plus eventual RMDs against the $218,000 threshold of the MFJ IRMAA. If that future performance crosses the line, the deferral years between 65 and 70 are your last cheap conversion clue, and each skipped year is permanent.
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