Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

How To Pay 0% Taxes On $120k+ Of Retirement Income

• Ari Taublieb, CFP®, MBA • Episode 259

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Tax gain harvesting is one of the most underused but powerful strategies available to early retirees and those pursuing financial independence. In this episode, we explore how it works, who it's best suited for, and how it can help reduce long-term tax liability.

Unlike tax loss harvesting, which involves selling investments at a loss to offset gains, tax gain harvesting is about intentionally realizing gains when you're in a low or zero percent tax bracket—allowing you to reset your cost basis without triggering federal tax in certain situations.

This strategy is most effective in taxable brokerage accounts and is typically not applicable to retirement accounts like IRAs or 401(k)s. It tends to work best in years where your income is lower, such as early retirement or transition periods before drawing Social Security.

Even with additional income from dividends or part-time work, many people can still benefit from this approach. However, it’s important to consider potential state tax implications as well.

We’ll break down how tax gain harvesting fits into a broader retirement tax strategy, what makes someone a good candidate, and how to use it thoughtfully as part of your long-term financial plan.

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Advisory services are offered through Root Financial Partners, LLC, an SEC registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult your CPA or attorney regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements.

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.


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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 1:

it blows my mind that you're not aware of the 0% tax bracket. Now, I'm not mad at you, I'm mad at the system that didn't teach us this earlier. But this is something that exists for everyone and most people just aren't even aware of it. This was the first thing that absolutely blew my mind, and when I found out about this, I literally wanted to tell all of my family and they were like hey, I get you're excited about this because this is what you do. But I don't know if this is going to apply to me and I said, no, it does. Let me tell you about it. So this is what I'm going to be talking about today. It's called tax gain harvesting.

Speaker 1:

Many of you are familiar with something called tax loss harvesting, so you might be wondering if I just misspoke by saying tax gain harvesting Now, although I have certainly misspoke before, because I am not perfect, but I will say that right now I am not misspeaking and tax loss harvesting. That's a very basic principle to actually try to harvest losses, otherwise said, bank losses to offset against future gains. Even that, many of you are familiar with the phrase or you're like I know I should be doing it, but I just don't have time to do it or my advisor's currently doing it, so I don't know the details. You don't need to know about tax loss harvesting, because I don't think it's nearly as cool or applicable as tax gain harvesting when it comes to an early retirement. Now it's certainly helpful. We personally we do it for our clients. But the simple way to think about it is let's pretend you bought Apple stock for $5,000. And you also bought Coca-Cola for $5,000. And Apple stock went up, so $5,000 became $6,000. And Coca-Cola went down from $5,000 to $3,000. Most people just go went down from $5,000 to $3,000. Most people just go. Okay, that's what happened to my portfolio. That's not optimal. If you wanted to sell Apple stock, which went up $1,000, and sell Coca-Cola, which went down $2,000, you could actually offset those to one another and bank $1,000 in losses. You can do that up to $3,000 every single year and it's a cool strategy.

Speaker 1:

It's something that's very simple. I kind of equate it to if you go to the doctor's office and you go, I want to take care of my health, what should I do? They're going to tell you to drink water, exercise and sleep. Tax loss harvesting is one of those things. Make sure to save to the right of your retirement account, make sure to do tax loss harvesting, make sure to absolutely max out your Roth IRA. These are some very basic terms that, in our world, are things that I'll even take for granted, because I'm talking about it all day, every day. I'm gonna talk to you today about something way cooler, way, way cooler. This is called tax gain harvesting. There's something on the screen that you're gonna see right here. This is the 0 percent tax rate.

Speaker 1:

Now, if you're listening to this podcast because this is also an audio podcast I'm going to explain it to you. I do recommend watching this on youtube, though, because when I'm going through examples with numbers, it can be a whole lot easier to follow along. But I will do my best. I personally listen to a lot of podcasts, so I empathize with you, because sometimes I'll be watching something and they'll say, well, this is also an audio version. Or vice versa. I'll be listening and they'll say this is the video version, and I'm like, hey, I'm just going to listen to this, like where I am, don't make me go move places. So no requirement, but just wanted to make sure you're aware I can empathize and resonate with that. Now, if you don't know already my resonate with that. Now, if you don't know already, my name is Ari Taublieb, I'm a certified financial planner, I'm the host of the Early Retirement Podcast and I'm the chief growth officer here at Root. So let me tell you about why this is so freaking cool.

Speaker 1:

Okay, tax gain harvesting is the concept of intentionally selling something that's gone up in value to pay 0% in taxes, ready for this. So who does this not apply to? Because this might not apply to you. I don't need you to waste your time listening to me go on and on about this thing that I'm obsessed with. Now, maybe you find it fun to hear me get into tons of detail about these types of concepts, which, if that's the case, awesome, and you're feel free to listen, but I don't want to waste your time.

Speaker 1:

So, if you don't have a superhero account, that's what I call a brokerage account, which is called a taxable account, which is called a joint account, which is called individual account. They're all the same exact thing. It's an after tax account. It's not a specific retirement vehicle. If you don't have this superhero account, I would consider opening one yesterday, and if you do have one, then this will apply to you, and most of you do have one. This is not your 401k, it's not your IRA, it's not a Roth IRA. This superhero account allows you to do tax loss harvesting, which I went over at the beginning, and tax gain harvesting, which I'm going to go over now.

Speaker 1:

I'm going to give you an example and I'm going to show you why this is so rad. Ready for this? Did I just say rad? I sound like my dad saying that. Okay, so check this out. Look at my screen right here. I'm going to explain it for all you listeners out there. So I'm going to take an example. This is how I did it for my couple that is a client, because they are like Ari. I know you love this financial stuff and you're so into it. But look, we're just busy people. Just give it to us in English and make it real fast because we're busy people. I said don't worry, I got you. I said can I have two minutes? They said go, and they actually started a clock. So I'm going to do that with you here. So if you're on YouTube, you're going to see a clock right here. Two minutes Ready, here we go.

Speaker 1:

So what if you could pay 0% taxes on north of $100,000 of gains. I mean, how cool would that be? And they're like is this like Ozark stuff, like that Netflix show? Like illegal, nope, totally legal. So imagine John and Jane come in and they bought Apple stock for $1,000 in their superhero account and now it's worth $100,000. That's $99,000 of gains.

Speaker 1:

Stick with me here, if they were to just go sell that, most of the time people think I've got to go pay taxes. Right, I mean, it went up in value and it's not in like my 401k or Roth IRA, so like there's no tax benefit. Those people are wrong. Okay, I don't like those people. No, I'm just kidding. I like those people.

Speaker 1:

But the idea here is amazing because what there is is something called a long-term capital gains tax and as long as you've held that Apple stock position for over one year, you can go sell that, assuming you have no other income. So I'm pretending this couple's retired and pay 0% taxes on the first 96,700 of gains. So they bought Apple stock for 1,000. It's now worth 100,000. That's 99,000 of gains. I'm a CFP, guys. You just saw that right there. I just did a hundred minus one, pretty good, I know.

Speaker 1:

So 99,000 of gains, 96,700. This is the amount that they would pay 0% taxes on. They could sell that position and legitimately walk away with 96,700 completely tax-free. I mean, how cool is that? The remainder, though? Okay, the remainder, the other $2,300, that gets taxed at the 15% bracket.

Speaker 1:

But wait, didn't I say 100,000 plus tax free. That's right, I did so. You get to add this standard deduction here. So if this couple takes the standard deduction $30,000, and they have no other income and they want to spend 126,700 in a given year and pay 0% taxes, that is possible. That's pretty cool $96,700 plus $30,000 standard deduction. I mean, I think I'm right about two minutes here in time. Here. I don't know exactly where the clock is, but my editor is awesome and he'll put it there, and so if I didn't hit the two minutes, I apologize everyone. If I did hit it, then tell me good job in the comments, because I was never told that as a kid no, I'm kidding, my parents were great.

Speaker 1:

Okay, so 96,700. Why is this so cool? You just bought Apple stock for $1,000. It's not worth $100,000. You don't have to pay taxes when you sell it.

Speaker 1:

Now you do pay taxes along the way if there's dividends or interest, and the reality is most people they don't have zero income in retirement. They at the beginning might have very little income, meaning there's no social security, there's no rental income, there's no inheritance, there might not be a pension. So at the beginning it might truly be zero. Maybe they're working part time, but most people there's like 10,000000 of dividends or interest, or sometimes $50,000. So maybe it's not the full $96,700 that you get to take advantage of. But what if you retire at $55,000 and you don't have any more income in the traditional sense from your employer, but you do have dividends that bring in $30,000 a year? Okay, well, 96,000 minus 30, that's still 66,700, plus the standard deduction, which really brings you back up to 96,700 that you could generate in capital gains and pay no taxes on. Except there are state taxes, which is different. So that depends on what state you're in.

Speaker 1:

But this is something that is so freaking cool so many people don't talk about it. This is called tax gain harvesting. This is something that I would encourage everyone to strongly consider, because if you're in your 40s or 50s and you want to retire early one day, if you add more money to this brokerage account, you don't have to wait till you're 59 and a half. Like a 401k, you can access the funds earlier. Now with a 401k, there are things like rule of 55 or substantial equal periodic payments that allow you to actually tap in earlier. But most of the time, a brokerage account is the best thing you can do. It massages your income. You can choose how you create the income. So why do I get so freaking passionate about this? Well, look at my screen. I'm also going to explain it once again. This is our tax planning checklist. So for our clients, we're going through Roth conversions, tax loss harvesting that's where I talked about the beginning. Tax gain harvesting that's what I just did for you right now.

Speaker 1:

Donor advised funds that's charitable. Giving Irma planning that's extra Medicare surcharges that you might not even be aware of. That occur as soon as Medicare hits and you have to. Actually, there's what's called a two-year look back on Medicare, which means if you don't plan well, you might go. I did this amazing Roth conversion and then, two years later, you're like why am I paying so much more in Medicare Part B and D? Well, what happened is you did an on-paper optimal thing that actually hurts you later. Estate taxes make sure you're aware of those.

Speaker 1:

Healthcare planning. I talk about this a lot, but I have a client that has $3 million in their portfolio and they spend $11 a month in healthcare because they are optimizing how they pull their income. It's coming from a brokerage account. Now, not every client is paying $11 a month, some less and some paying a thousand plus because they're not optimizing, because they didn't set themselves up well enough. Other people I'm talking about tax credits or windfall planning, or real estate or withdrawal planning, or charitable or savings or qualified charitable distributions or equity comp or you name it. So tax planning is the biggest thing that gets overlooked in early retirement and this is what I'm obsessed with.

Speaker 1:

So a few options for you. This many of you are aware of already, but I want to make sure that every single time you listen to this podcast, there's some actionable takeaway if you want, if you want to actually go build your own tax strategy, meaning you want to go see, hey, should I be doing tax gain harvesting or Roth conversions. I have what's called the Early Retirement Academy where you can go run your own what-if scenarios. So you can go in here and see okay, when would it make sense for me, should I do the harvesting, should I do conversions? What's going to actually put more money in my pocket over time.

Speaker 1:

Now, there's no one-on-one guidance with this. This is just where you have me as your guide. You can actually see that there's a ton of custom videos in here to understand cash flow and insurance and estate planning and Roth conversions, and I get into more detail than this video. So that's an option. It's a few hundred bucks for a reason. Once again, no one-on-one guidance. It's a one-time cost. Go build your own plan. That's where you're your own advisor.

Speaker 1:

If you're closer to retirement going, I don't know if I want to spend my time doing this. I want to pay a professional who's going to do it way faster and probably better. I want to delegate this and have a true partner. Well, that's what we do here at Root. So you can go to our website, root Financial, and in the upper right you can actually see where you can go to get started. So, once again, if you're watching this right now, you can see me doing this with you in real time. If you're listening, once again, same information. So you can go ahead and click, see if you're a fit, fill out some information and then, if it's assuming a good fit, then we get to have an awesome conversation and see if it makes sense to partner with one another. So that's it for this episode tax gain harvesting how to pay 0% in taxes.

Speaker 1:

I think this was just one of the coolest things. That doesn't apply to everyone, but if it does apply to you, it's a big deal, because if you retire earlier, you literally I mean this is how I explained it to my client. I was saying look, imagine you go to work and you're bringing in a salary of 120,000. What are you taking home after 401k and insurance and taxes? And they're like, I don't know, maybe 95,000. I said, okay, so you could go work a job that requires all of your time and a lot of energy and effort to bring in 95,000 net dollars. Or if you saved, invest well and you do that to a brokerage account, you could generate more than that from this tax gain harvesting technique and you didn't have to work at all. Now you had to save and invest what to get to that point. So I'm not trying to make it sound like it's super easy, but the reality is there are instruments and strategies out there that will make it. So you don't have to work as hard, which means you get more time with energy and family. Excuse me, more time with family. You can't have more time with energy. That would be really weird.

Speaker 1:

But if this was something that was interesting or blew your mind in any way, please let me know. Did it blow your mind like it blew mine? Because when I found out about this, I went this is illegal. How did someone not tell me about this? My brother found out about a Roth IRA when he was 28 and he was so pissed because he went. Why didn't someone tell me to do this at 18? I mean, this is the coolest thing ever. So that's how I felt about this tax gain harvesting.

Speaker 1:

If you found it interesting, sorry about that put that in the comments below, because it's fun. I want to get to read those. It makes my job fun. A lot of this that I record I mean not a lot, all of it. This is all free content that I'm putting on YouTube because I love doing it. So let me at least read the comments and hear what you guys have to say about it. If you're listening on the podcast app, please rate it, review it. It helps more people join and watch the show, and that's all I want to do. I want to help as many people as I can find out when work can truly become optional, where you're working because you want to, not because you have to. That's it. See you next time.

Speaker 1:

Thank you all, as always, for listening to the Early Retirement Podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years. Your tax preparer, your estate attorney Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom, if you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it, thanks, guys.