Short answer
Once your business stops paying you, the years after the sale are often your lowest-income years, before Social Security and required retirement withdrawals begin. That low-bracket window is valuable. It is the time to convert pretax retirement savings to a Roth by filling up the lower tax brackets, and to realize capital gains at the 0 or 15 percent rates while your income is down. The sale year itself is the opposite, your highest-income year, so converting or stacking income then is a mistake. Before converting, deal with the pro-rata rule by rolling any pretax IRA balances into a 401(k) first, so a backdoor Roth is not partly taxed. Keep paying estimated taxes, and remember that earnouts and installment notes bring future-year bills. Watch the second-order effects qualitatively: converting raises income, which can raise Medicare premiums two years later (IRMAA), trigger the 3.8 percent net investment income tax, or reduce health insurance credits before Medicare. And know that as a former owner you have lost the QBI and self-employed deductions.
Key facts
- The window
- The low-income years after the sale, before Social Security and required withdrawals, are often your lowest-bracket years.
- The wrong year
- The sale year is your highest-income year. Do not convert or stack income on top of it.
- Roth conversion mechanics
- Convert enough pretax savings to fill a lower bracket, pay tax now at a low rate, and the Roth grows and comes out tax-free.
- Gain harvesting (2026)
- Long-term gains are taxed at 0 percent up to $98,900 of taxable income for a couple, 15 percent up to $613,700.
- The pro-rata trap
- Roll pretax IRA balances into a 401(k) before a backdoor Roth, or the conversion is taxed proportionally.
Why the sale year is the wrong year, and the next years are right
Tax planning after a sale runs on one simple fact about brackets. The more income you have in a year, the higher the rate on your last dollars. Your sale year is your single highest-income year, often reaching the top 37 percent federal bracket, which starts at $768,700 of taxable income for a married couple in 2026. That is the worst possible year to add more income on purpose. Then the business stops paying you. If you have not yet started Social Security and are not yet taking required withdrawals from retirement accounts, your income can drop sharply. Those quiet years, often the ones between selling and your late sixties, are frequently the lowest-tax years of your adult life. That drop is not a problem to fix; it is a window to use. Two moves fit the window, and both are mistakes in the sale year and valuable in the years after.
Roth conversions: fill up the low brackets on purpose
A Roth conversion moves money from a pretax retirement account, like a traditional IRA or an old 401(k), into a Roth account. You pay income tax on the amount you convert this year. In return, that money then grows and comes out completely tax-free later, and it is never subject to required withdrawals. The entire value of the trade depends on the rate you pay to convert. Converting in a 37 percent year is a poor deal; converting in a 12 or 22 percent year can be an excellent one.
The usual approach is to convert just enough to fill up a low bracket without spilling into a higher one. Suppose a couple's income in a quiet post-sale year would otherwise sit inside the 12 percent bracket, which in 2026 runs to $100,800 of taxable income before the 22 percent bracket begins. They might convert enough to reach the top of the 22 percent bracket at $211,400, and stop. They pay a modest rate now on a large chunk of pretax savings, and that money is out of the taxable-account and required-withdrawal world for good. Done across several low-income years, this can move a meaningful share of a retirement account into tax-free status at a low cost. The right amount each year depends on your other income, your state, and the watch-outs below, so it is worth modeling year by year rather than picking a round number.
Clear the pro-rata trap before you convert
There is a rule that trips up owners who try to convert or do a backdoor Roth. When you convert, the IRS does not look only at the dollars you move; it looks at all your traditional IRA balances together. If you hold pretax IRA money, part of any conversion is treated as pretax and taxed, even a backdoor Roth you intended to be tax-free. This is the pro-rata rule. The common fix is to roll your pretax IRA balances into a current employer 401(k) first, if the plan accepts rollovers, because money inside a 401(k) is not counted in the pro-rata math. With the pretax IRA emptied, a backdoor Roth of $7,500 plus a $1,100 catch-up in 2026 can go in cleanly. Sort this order out before you convert anything, because it is hard to undo afterward.
Harvest gains while your rate is low
The same low-income window helps with a different tax. Long-term capital gains have their own brackets, and in a low-income year you may fall into the cheap ones. In 2026 a married couple filing jointly pays zero percent on long-term gains up to $98,900 of taxable income and 15 percent up to $613,700, only reaching 20 percent above that. In your high-income sale year you were almost certainly in the 20 percent band. In a quiet year after, you may be far lower. That makes these years a good time to sell appreciated holdings you needed to sell anyway, to rebuild a diversified portfolio out of a concentrated one, at a much lower cost. You can also sell holdings that are down to bank losses that offset future gains. The investing page ties this to rebalancing.
Both moves use the same low-income window, and both add to your income, so they can crowd each other out in a single year. A big Roth conversion can push your income up enough that your capital gains no longer qualify for the zero rate. In a year you want to do both, model them together and decide how to split the room, rather than doing each as if the other did not exist.
Keep paying estimated taxes, and plan for future-year bills
Income tax is pay-as-you-go. Tax on a Roth conversion, on investment income, and on any earnout or installment payment is due through quarterly estimated payments during the year, not in a lump next April. Missing them brings penalties. Set the tax aside when the income arrives and pay on schedule. And remember that a sale is not always finished in one year. If part of your deal was an earnout, a seller note, or an installment sale, tax comes due as those payments arrive, sometimes for years. If you hold rollover equity, a second bite of tax waits at the eventual sale, covered on the rollover page. Build your conversion plan around those known future bills, so you are not converting heavily in a year an earnout also lands.
The second-order effects to watch
Adding income on purpose, even at a low rate, can trip other thresholds. None of these should stop you from converting; they should shape how much you convert.
- Medicare surcharges, known as IRMAA, charge higher Part B and Part D premiums to people with higher income, based on your tax return from two years earlier. A large conversion can raise your premiums two years later, which matters most in the years around age 65.
- The 3.8 percent net investment income tax applies once your income crosses $250,000 for a couple or $200,000 for a single filer. A conversion is not itself investment income, but by raising your income it can pull your investment income into that tax.
- If you buy health insurance through the marketplace before Medicare, the premium credits fall as income rises, so a conversion can raise your insurance cost that year.
The point is not to fear these; it is to model a conversion against them and size it so the benefit clearly beats the cost. This is exactly the kind of year-by-year modeling where coordination between a planner and a CPA earns its fee.
The deductions you lost, and why they matter here
Selling ended more than your income. The 20 percent qualified business income deduction is gone, because you no longer have business income. The self-employed health insurance deduction is gone. Your business retirement plan, whether a solo 401(k) or a cash balance plan, is gone, and the buyer's plan, if you became an employee, is usually smaller. If you are now a W-2 employee, note that in your second year you may become subject to the rule requiring high earners to make retirement catch-up contributions as Roth. All of this raises the tax on each dollar you earn from here, which is another reason to use the low-income window well while you have it.
When this does not apply to you
The window is smaller or absent for some sellers. If you kept a high income after the sale, through a large salary from the buyer, big rollover distributions, or other business income, you may not have low-bracket years to fill, and aggressive conversions may not pay. If almost all your savings is already in Roth or taxable accounts, there is little pretax money to convert. And if a large earnout or installment note keeps your income high for several years, the quiet window may not open until those payments end. None of the bracket figures here are a prediction of your tax; they are the current thresholds, and your own return decides where you land.
What to do next
Map your income for the next several years and find the low-bracket ones, the years after the business stops paying you and before Social Security and required withdrawals begin. Before converting anything, clear the pro-rata rule by rolling pretax IRA balances into a 401(k). Then, in each low year, convert enough to fill a chosen bracket and no more, harvest capital gains in the room that is left, and keep paying estimated taxes as the income lands. Model each conversion against IRMAA, the net investment income tax, and any marketplace insurance credits, and coordinate with any earnout years. Because this is genuinely a year-by-year, CPA-and-planner problem, the advisor page is honest about when it is worth coordinating help, and the contact page explains how a first conversation works. See also the after-sale plan for how this fits the wider first year.
Questions people ask
Why is the sale year the wrong year for a Roth conversion?
Because a Roth conversion adds the converted amount to your taxable income, and the sale year is already your highest-income year. Converting then stacks ordinary income on top of a year that may already reach the 37 percent bracket, so you pay the highest possible rate on the conversion. The whole value of a conversion comes from doing it in a low-bracket year. Wait for the quieter years after the business stops paying you.
How much should I convert to a Roth in a low year?
The common approach is to convert just enough to fill up a lower tax bracket without spilling into the next one. If your income is low enough to sit in the 12 or 22 percent bracket, you might convert enough to reach the top of the 22 or 24 percent bracket and stop there. The right amount depends on your other income, your state, and effects like Medicare premiums, so it is worth modeling year by year rather than converting a fixed amount. See the sequence below.
What is the pro-rata rule and why does it matter?
When you convert money to a Roth, the IRS looks at all your traditional IRA balances together, not just the dollars you convert. If you have pretax IRA money, a conversion is treated as partly pretax and taxed proportionally, even a backdoor Roth you meant to be tax-free. The fix is usually to roll your pretax IRA balances into a current 401(k) first, which removes them from the calculation, then do the conversion. Sort this out before you convert, not after.
What is gain harvesting in a low-income year?
It is selling appreciated investments on purpose in a year your income is low, to pay tax on the gain at a lower rate. In 2026 a married couple filing jointly pays zero on long-term gains up to $98,900 of taxable income and 15 percent up to $613,700. In a quiet post-sale year you may sit in those lower bands, so realizing some gains then, to rebuild a diversified portfolio, can cost far less than doing it in your high-income sale year.
Do I still owe estimated taxes after the sale?
Yes. Income tax is pay-as-you-go, so tax on a Roth conversion, on investment income, or on an earnout or installment payment is due through quarterly estimated payments, not next April. Set the money aside when the income arrives and pay it on schedule to avoid penalties. If part of your deal pays out over several years, plan for a tax bill in each of those years, not just the year of closing.
Can a Roth conversion raise my Medicare premiums?
Yes, and it is a real watch-out. Medicare charges higher Part B and Part D premiums to people with higher income, using your tax return from two years earlier, a surcharge known as IRMAA. A large Roth conversion raises your income for that year, which can raise your premiums two years later. It does not mean you should avoid converting; it means you should size the conversion with that effect in mind and model it, especially in the years close to age 65.
What deductions did I lose when I sold?
Several that quietly change your tax math. The 20 percent qualified business income deduction ends, because you no longer have business income. The self-employed health insurance deduction ends. Your business retirement plan, whether a solo 401(k) or a cash balance plan, goes away, and the buyer's plan is usually smaller. If you became a W-2 employee, you also lose write-offs you took as an owner. None of these is a crisis, but together they raise the tax on each dollar of income, which is another reason the low-income window is worth using well.
Should I convert before or after moving to a no-tax state?
If you are planning a move to a state with no income tax, converting after the move is complete generally avoids your old state's tax on the converted amount. The catch is that the move has to be real and complete, and states that tax large-gain years watch mid-move returns closely. Do not let the tax tail wreck the timing of a genuine move, but if a move is happening anyway, sequencing conversions after it can save the state tax on them. Confirm the details with your CPA.