The Retirement Tax Moves That Could Save You Thousands
Taxes don’t stop when you retire but with the right strategies, you can drastically reduce what you owe. I want to walk you through three key tools that smart retirees use to stay ahead of the IRS: tax gain harvesting, avoiding the Social Security tax torpedo, and planning Roth conversions wisely. These moves aren’t complicated, but they require knowing how the system works and taking action at the right time.
Using Tax Gain Harvesting to Pay $0 in Taxes
One of the most overlooked strategies in retirement is tax gain harvesting. If you’re in the 0% long-term capital gains bracket $48,350 for singles and $96,700 for married couples in 2025 you can sell appreciated investments and pay zero federal tax. Take Joe Sample, a single retiree. He pulled $15,000 from his IRA, which was offset entirely by the standard deduction. Then he sold $60,000 in stocks from his brokerage account. Because his cost basis was $250,000 and his account was worth $1 million, $15,000 was a return of capital and $45,000 was a taxable gain still under the 0% capital gains threshold. Total tax owed? $0. That’s what smart timing and a little math can do.
Avoiding the Social Security Tax Torpedo
This one sneaks up on retirees. It’s called the Social Security tax torpedo, and it happens when other income like IRA withdrawals increases your provisional income and triggers taxes on your benefits. For example, let’s say you and your spouse receive $50,000 from Social Security and take out $40,000 from your IRA. Your provisional income hits $65,000, and suddenly, $23,850 of your Social Security becomes taxable. That bumps your effective tax rate to over 22%, even though you thought you were in the 12% bracket. It’s not just about how much you withdraw it’s about how all your income sources interact.
Getting Roth Conversions Just Right
Roth conversions are one of the most powerful tools for reducing future tax burdens—but only when done correctly. Consider John and Sally. They have $2.5 million in an IRA, and if they don’t act, their required minimum distributions (RMDs) will push them into higher brackets later. By converting a portion of their IRA now, while staying within the 12% tax bracket, they avoid a larger tax hit in the future. But there’s a catch. If you over-convert like in another scenario where a couple converted too much of a $250,000 IRA at once they faced a six-figure loss in after-tax wealth. The trick is to convert enough to reduce future RMDs, but not so much that you spike your current tax bill.
Why These Strategies Matter
In retirement, tax planning becomes more important not less. It’s not just about how much you’ve saved, but how much you get to keep. Understanding how capital gains, Social Security benefits, and IRA distributions all play together can mean the difference between a comfortable retirement and one filled with surprises. A personalized tax map based on your income, assets, and goals can help you take advantage of the 0% capital gains bracket, minimize the impact of the tax torpedo, and convert your Roth IRA with confidence.
You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.
Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.
