One of the best ways for retirees to save thousands of dollars in taxes is through careful capital gains tax planning. Long-term capital gains are taxed differently than ordinary income, and their lower tax rates can save you a significant amount of money if you plan carefully.
For 2026, long-term capital gains are generally taxed at 0% if your taxable income is under $98,900, 15% for taxable income between $98,900 and $613,699, and 20% for taxable income of $613,700 or more (for married couples filing jointly).
While you are working, it may not be practical—or even possible—to minimize your taxable income. However, once you retire, you often have much more flexibility. If you have money in a traditional IRA, a Roth IRA, a brokerage account, and are collecting Social Security, you may be able to choose which accounts to withdraw from each year to reduce your overall tax bill.
For example, suppose a retired couple receives $60,000 of Social Security benefits and needs an additional $60,000 to cover their annual living expenses. If they are able to sell investments from their brokerage account while realizing less than approximately $44,000 of long-term capital gains (with the remainder of the proceeds coming from their cost basis), they could potentially owe no federal income tax.
How is that possible? Social Security benefits are not always taxable. The IRS determines whether your benefits are taxable based on a calculation called provisional income, which includes only half of your Social Security benefits plus your other income. By carefully managing how much capital gain is realized in a given year, retirees may be able to keep both their Social Security benefits and their long-term capital gains in the 0% federal tax brackets.
Imagine living on $120,000 per year while paying no federal income tax. While not everyone will qualify for this strategy, it illustrates just how valuable thoughtful tax planning can be in retirement.
As you can see, retirement tax planning can become quite complex, so be sure to consult your financial planner or tax professional before making any major tax decisions. A little planning today could save you thousands of dollars over the course of your retirement.
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