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

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.

- 

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.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

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.

Episode Transcript

Speaker 1 (00:00):
it blows my mind that you're not aware of the 0% tax
bracket.
Now, I'm not mad at you, I'mmad at the system that didn't
teach us this earlier.
But this is something thatexists for everyone and most
people just aren't even aware ofit.
This was the first thing thatabsolutely blew my mind, and
when I found out about this, Iliterally wanted to tell all of
my family and they were like hey, I get you're excited about

(00:22):
this because this is what you do.
But I don't know if this isgoing to apply to me and I said,
no, it does.
Let me tell you about it.
So this is what I'm going to betalking about today.
It's called tax gain harvesting.
Many of you are familiar withsomething called tax loss
harvesting, so you might bewondering if I just misspoke by
saying tax gain harvesting Now,although I have certainly

(00:43):
misspoke before, because I amnot perfect, but I will say that
right now I am not misspeakingand tax loss harvesting.
That's a very basic principleto actually try to harvest
losses, otherwise said, banklosses to offset against future
gains.
Even that, many of you arefamiliar with the phrase or

(01:05):
you're like I know I should bedoing it, but I just don't have
time to do it or my advisor'scurrently doing it, so I don't
know the details.
You don't need to know abouttax loss harvesting, because I
don't think it's nearly as coolor applicable as tax gain
harvesting when it comes to anearly retirement.
Now it's certainly helpful.
We personally we do it for ourclients.

(01:31):
But the simple way to thinkabout it is let's pretend you
bought Apple stock for $5,000.
And you also bought Coca-Colafor $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 downfrom $5,000 to $3,000.
Most people just go.
Okay, that's what happened tomy portfolio.
That's not optimal.
If you wanted to sell Applestock, which went up $1,000, and

(01:52):
sell Coca-Cola, which went down$2,000, you could actually
offset those to one another andbank $1,000 in losses.
You can do that up to $3,000every single year and it's a
cool strategy.
It's something that's verysimple.
I kind of equate it to if yougo to the doctor's office and
you go, I want to take care ofmy health, what should I do?

(02:13):
They're going to tell you todrink water, exercise and sleep.
Tax loss harvesting is one ofthose things.
Make sure to save to the rightof your retirement account, make
sure to do tax loss harvesting,make sure to absolutely max out
your Roth IRA.
These are some very basic termsthat, in our world, are things
that I'll even take for granted,because I'm talking about it

(02:33):
all day, every day.
I'm gonna talk to you todayabout something way cooler, way,
way cooler.
This is called tax gainharvesting.
There's something on the screenthat you're gonna see right
here.
This is the 0 percent tax rate.
Now, if you're listening to thispodcast because this is also an
audio podcast I'm going toexplain it to you.
I do recommend watching this onyoutube, though, because when

(02:55):
I'm going through examples withnumbers, it can be a whole lot
easier to follow along.
But I will do my best.
I personally listen to a lot ofpodcasts, so I empathize with
you, because sometimes I'll bewatching something and they'll
say, well, this is also an audioversion.
Or vice versa.
I'll be listening and they'llsay this is the video version,
and I'm like, hey, I'm justgoing to listen to this, like
where I am, don't make me gomove places.

(03:16):
So no requirement, but justwanted to make sure you're aware
I can empathize and resonatewith that.
Now, if you don't know alreadymy resonate with that.
Now, if you don't know already,my name is Ari Taublieb, I'm a
certified financial planner, I'mthe host of the Early
Retirement Podcast and I'm thechief growth officer here at
Root.
So let me tell you about whythis is so freaking cool.

(03:37):
Okay, tax gain harvesting is theconcept of intentionally
selling something that's gone upin value to pay 0% in taxes,
ready for this.
So who does this not apply to?
Because this might not apply toyou.
I don't need you to waste yourtime listening to me go on and
on about this thing that I'mobsessed with.
Now, maybe you find it fun tohear me get into tons of detail

(04:00):
about these types of concepts,which, if that's the case,
awesome, and you're feel free tolisten, but I don't want to
waste your time.
So, if you don't have asuperhero account, that's what I
call a brokerage account, whichis called a taxable account,
which is called a joint account,which is called individual
account.
They're all the same exactthing.
It's an after tax account.
It's not a specific retirementvehicle.
If you don't have thissuperhero account, I would

(04:23):
consider opening one yesterday,and if you do have one, then
this will apply to you, and mostof you do have one.
This is not your 401k, it's notyour IRA, it's not a Roth IRA.
This superhero account allowsyou to do tax loss harvesting,
which I went over at thebeginning, and tax gain
harvesting, which I'm going togo over now.
I'm going to give you an exampleand I'm going to show you why

(04:43):
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 allyou listeners out there.
So I'm going to take an example.
This is how I did it for mycouple that is a client, because
they are like Ari.
I know you love this financialstuff and you're so into it.
But look, we're just busypeople.
Just give it to us in Englishand make it real fast because

(05:06):
we're busy people.
I said don't worry, I got you.
I said can I have two minutes?
They said go, and they actuallystarted a clock.
So I'm going to do that withyou here.
So if you're on YouTube, you'regoing to see a clock right here
.
Two minutes Ready, here we go.
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 likeOzark stuff, like that Netflix

(05:27):
show?
Like illegal, nope, totallylegal.
So imagine John and Jane comein and they bought Apple stock
for $1,000 in their superheroaccount and now it's worth
$100,000.
That's $99,000 of gains.
Stick with me here, if they wereto just go sell that, most of
the time people think I've gotto go pay taxes.
Right, I mean, it went up invalue and it's not in like my

(05:50):
401k or Roth IRA, so likethere's no tax benefit.
Those people are wrong.
Okay, I don't like those people.
No, I'm just kidding.
I like those people.
But the idea here is amazingbecause what there is is
something called a long-termcapital gains tax and as long as
you've held that Apple stockposition for over one year, you
can go sell that, assuming youhave no other income.

(06:13):
So I'm pretending this couple'sretired and pay 0% taxes on the
first 96,700 of gains.
So they bought Apple stock for1,000.
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.
So 99,000 of gains, 96,700.

(06:35):
This is the amount that theywould pay 0% taxes on.
They could sell that positionand 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

(06:56):
15% bracket.
But wait, didn't I say 100,000plus tax free.
That's right, I did so.
You get to add this standarddeduction here.
So if this couple takes thestandard deduction $30,000, and
they have no other income andthey want to spend 126,700 in a

(07:18):
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 abouttwo minutes here in time.
Here.
I don't know exactly where theclock 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 megood job in the comments,

(07:39):
because I was never told that asa kid no, I'm kidding, my
parents were great.
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 taxeswhen you sell it.
Now you do pay taxes along theway if there's dividends or
interest, and the reality ismost people they don't have zero

(08:00):
income in retirement.
They at the beginning mighthave very little income, meaning
there's no social security,there's no rental income,
there's no inheritance, theremight not be a pension.
So at the beginning it mighttruly be zero.
Maybe they're working part time, but most people there's like
10,000000 of dividends orinterest, or sometimes $50,000.
So maybe it's not the full$96,700 that you get to take

(08:23):
advantage of.
But what if you retire at$55,000 and you don't have any
more income in the traditionalsense from your employer, but
you do have dividends that bringin $30,000 a year?
Okay, well, 96,000 minus 30,that's still 66,700, plus the
standard deduction, which reallybrings you back up to 96,700

(08:46):
that you could generate incapital gains and pay no taxes
on.
Except there are state taxes,which is different.
So that depends on what stateyou're in.
But this is something that is sofreaking cool so many people
don't talk about it.
This is called tax gainharvesting.
This is something that I wouldencourage everyone to strongly
consider, because if you're inyour 40s or 50s and you want to

(09:08):
retire early one day, if you addmore money to this brokerage
account, you don't have to waittill you're 59 and a half.
Like a 401k, you can access thefunds earlier.
Now with a 401k, there arethings like rule of 55 or
substantial equal periodicpayments that allow you to
actually tap in earlier.
But most of the time, abrokerage account is the best
thing you can do.

(09:28):
It massages your income.
You can choose how you createthe income.
So why do I get so freakingpassionate about this?
Well, look at my screen.
I'm also going to explain itonce again.
This is our tax planningchecklist.
So for our clients, we're goingthrough Roth conversions, tax
loss harvesting that's where Italked about the beginning.
Tax gain harvesting that's whatI just did for you right now.

(09:49):
Donor advised funds that'scharitable.
Giving Irma planning that'sextra Medicare surcharges that
you might not even be aware of.
That occur as soon as Medicarehits and you have to.
Actually, there's what's calleda two-year look back on
Medicare, which means if youdon't plan well, you might go.
I did this amazing Rothconversion and then, two years
later, you're like why am Ipaying so much more in Medicare

(10:12):
Part B and D?
Well, what happened is you didan on-paper optimal thing that
actually hurts you later.
Estate taxes make sure you'reaware of those.
Healthcare planning.
I talk about this a lot, but Ihave a client that has $3
million in their portfolio andthey spend $11 a month in
healthcare because they areoptimizing how they pull their
income.

(10:32):
It's coming from a brokerageaccount.
Now, not every client is paying$11 a month, some less and some
paying a thousand plus becausethey're not optimizing, because
they didn't set themselves upwell enough.
Other people I'm talking abouttax credits or windfall planning
, or real estate or withdrawalplanning, or charitable or
savings or qualified charitabledistributions or equity comp or

(10:54):
you name it.
So tax planning is the biggestthing that gets overlooked in
early retirement and this iswhat I'm obsessed with.
So a few options for you.
This many of you are aware ofalready, but I want to make sure
that every single time youlisten to this podcast, there's
some actionable takeaway if youwant, if you want to actually go

(11:16):
build your own tax strategy,meaning you want to go see, hey,
should I be doing tax gainharvesting or Roth conversions.
I have what's called the EarlyRetirement Academy where you can
go run your own what-ifscenarios.
So you can go in here and seeokay, when would it make sense
for me, should I do theharvesting, should I do
conversions?
What's going to actually putmore money in my pocket over

(11:37):
time.
Now, there's no one-on-oneguidance with this.
This is just where you have meas your guide.
You can actually see thatthere's a ton of custom videos
in here to understand cash flowand 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 areason.
Once again, no one-on-oneguidance.

(11:58):
It's a one-time cost.
Go build your own plan.
That's where you're your ownadvisor.
If you're closer to retirementgoing, I don't know if I want to
spend my time doing this.
I want to pay a professionalwho's going to do it way faster
and probably better.
I want to delegate this andhave a true partner.
Well, that's what we do here atRoot.
So you can go to our website,root Financial, and in the upper

(12:19):
right you can actually seewhere you can go to get started.
So, once again, if you'rewatching this right now, you can
see me doing this with you inreal 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, ifit's assuming a good fit, then
we get to have an awesomeconversation and see if it makes
sense to partner with oneanother.

(12:40):
So that's it for this episodetax gain harvesting how to pay
0% in taxes.
I think this was just one of thecoolest things.
That doesn't apply to everyone,but if it does apply to you,
it's a big deal, because if youretire earlier, you literally I
mean this is how I explained itto my client.
I was saying look, imagine yougo to work and you're bringing
in a salary of 120,000.

(13:01):
What are you taking home after401k and insurance and taxes?
And they're like, I don't know,maybe 95,000.
I said, okay, so you could gowork a job that requires all of
your time and a lot of energyand effort to bring in 95,000
net dollars.
Or if you saved, invest welland you do that to a brokerage
account, you could generate morethan that from this tax gain

(13:25):
harvesting technique and youdidn't have to work at all.
Now you had to save and investwhat to get to that point.
So I'm not trying to make itsound like it's super easy, but
the reality is there areinstruments and strategies out
there that will make it.
So you don't have to work ashard, which means you get more
time with energy and family.
Excuse me, more time withfamily.
You can't have more time withenergy.
That would be really weird.

(13:52):
But if this was something thatwas interesting or blew your
mind in any way, please let meknow.
Did it blow your mind like itblew mine?
Because when I found out aboutthis, I went this is illegal.
How did someone not tell meabout this?
My brother found out about aRoth IRA when he was 28 and he
was so pissed because he went.
Why didn't someone tell me todo this at 18?
I mean, this is the coolestthing ever.
So that's how I felt about thistax gain harvesting.

(14:15):
If you found it interesting,sorry about that put that in the
comments below, because it'sfun.
I want to get to read those.
It makes my job fun.
A lot of this that I record Imean not a lot, all of it.
This is all free content thatI'm putting on YouTube because I
love doing it.
So let me at least read thecomments and hear what you guys
have to say about it.
If you're listening on thepodcast app, please rate it,
review it.
It helps more people join andwatch the show, and that's all I

(14:35):
want to do.
I want to help as many peopleas I can find out when work can
truly become optional, whereyou're working because you want
to, not because you have to.
That's it.
See you next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years.
Your tax preparer, your estateattorney Please be smart about

(14:59):
this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.

(15:21):
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom, if
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very

(15:42):
least give you some insight.
That's it, thanks, guys.