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When we think about saving for retirement, we often focus on accounts like 401(k)s, IRAs, and Roth IRAs. While these accounts offer valuable tax benefits, there's another type of account that’s often overlooked — and it can provide incredible tax benefits and flexibility in retirement.
In this post, I’ll explain how you could withdraw over $120,000 in income tax-free in 2025 if the circumstances are right — and spoiler alert — it's not a Roth IRA.
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A taxable brokerage account — sometimes called an after-tax account or a non-qualified account — is an ordinary investment account. Unlike retirement accounts, these accounts don’t have special tax-deferred characteristics.
With a taxable brokerage account, you’ll pay taxes on:
However, with proper planning, these accounts can be a powerful tool for tax-free income in retirement.
To understand how to make withdrawals from a taxable brokerage account tax-free, you first need to know the two primary U.S. tax systems:
This applies to:
Ordinary income tax rates are marginal, meaning you pay different percentages on different portions of your income.
This applies to:
Short-term capital gains (on assets held for less than one year) are taxed at ordinary income rates.
Long-term capital gains (on assets held for over one year) are taxed at lower, more favorable rates:
For long-term gains, you may qualify for the 0% tax rate if your adjusted gross income (AGI) is below a certain threshold.
When you add back in the standard deduction of $30,000, in 2025, a married couple filing jointly can earn up to $126,700 in gross income (including capital gains) before owing any capital gains tax. For single filers, the threshold is lower but still generous.
Imagine a married couple with:
Suppose they’ve just retired, with:
With $0 of ordinary income, they could withdraw up to $253,400 from their taxable brokerage account:
For individuals filing single, the numbers still work impressively well. Using the same example, one could withdraw over $100,000 tax-free from a taxable brokerage account by ensuring only $50,000 of that withdrawal is considered capital gains.
Even if you don’t need to withdraw that much money for living expenses, this strategy can still be valuable.
Tax gain harvesting involves:
This resets your cost basis to a higher value, reducing the taxable gain on future sales.
By using tax gain harvesting strategically, you can:
While this strategy can benefit many retirees, it's especially useful in these scenarios:
If you retire before age 65 and need to purchase health insurance through the Affordable Care Act (ACA) Marketplace, your premiums are often based on your adjusted gross income.
By drawing income from a taxable brokerage account — where only your capital gains count as taxable income — you can:
For Medicare recipients, IRMAA surcharges increase your Part B and Part D premiums if your income exceeds certain thresholds.
Because only your capital gains count toward AGI, taxable brokerage account withdrawals can help you stay below those limits and avoid costly IRMAA surcharges.
A taxable brokerage account offers unique flexibility that retirement accounts like 401(k)s and IRAs simply can’t match. By strategically managing withdrawals and gains, you can:
Whether you’re still years away from retirement or already retired, adding a taxable brokerage account to your plan could significantly improve your overall tax strategy.
If you’d like to see how strategies like this can fit into your retirement plan, consider downloading our Retirement Income Worksheet (linked below).
And if you’re looking for personalized guidance, my firm — Spark Wealth Advisors — is accepting new clients. We’d love to help you create a tax-efficient retirement strategy that aligns with your goals.
Schedule a free consultation here.
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