question about first 80K of capital gains at 0%

[clarkfan1979]

My wife and I should have a taxable income of around 45K in 2020. To my understanding, we will then have 35K available to capture some capital gains at 0% federal tax.

We have 92K in 401K and 403B from former employers. 70K, 19K and 3K. In the near future, I am going to roll them over into an individual IRA.

Is it possible to realize gains into a Roth or in another way while avoiding the 10% early withdrawal penalty.

If it is too complicated to explain the entire thing, could you send me some links to some websites to get me started?

 

[LightStache]

Distributions from a tax-deferred retirement account, including distributions for Roth conversion, are taxed as ordinary income -- it's not a capital gain. Since you're in the 12% federal bracket, that's the rate at which you would pay tax for your proposed conversion. The strategy you're probably thinking about, tax gain harvesting, is if you're in the 0% LTCG bracket (like you are) you sell and repurchase in a taxable account to get a step-up in cost basis.

Edited to correct tax bracket to MFJ.

[MustacheAndaHalf]

There's two tax brackets that are near $80k.

For income tax, a married couple pays 12% up to $78,950.  If you convert a Traditional IRA or 401(k) into a Roth IRA, you would pay 12% tax on the entire amount.  (The entire amount is pre-tax, and then you convert it to after-tax)

Do you have any investments in a taxable account?  Investments you've held over a year can be sold, and the gain is treated as a "long-term capital gain" (LTCG).  That's subject to the 0% LTCG tax rate up to $78,750 :
https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/