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When most people think of tax-free income in retirement, the first thing that comes to mind is the Roth IRA. And while Roth accounts are a powerful tool, they’re not the only way to keep your retirement income free from taxes.
In fact, there’s a lesser-known but completely legal tax planning strategy that allows many retirees to generate over $120,000 in tax-free income every year — all without using a Roth or cash-value life insurance.
It’s called tax gain harvesting, and it’s an underused strategy hidden in plain sight within the U.S. tax code. In this article, we’ll break down exactly how it works and how you can incorporate it into your own retirement planning strategy.
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Tax gain harvesting is the process of intentionally selling appreciated investments in a taxable brokerage account in order to take advantage of the 0% long-term capital gains tax bracket.
Most people are familiar with tax loss harvesting — selling investments at a loss to offset gains or income — but very few retirees know they can sell at a gain and still pay $0 in taxes if they fall into the right income range.
This is a powerful planning strategy for retirees, especially in the early years of retirement when income is often low, and before things like Social Security or RMDs kick in.
The key to this strategy lies in having money saved in a taxable brokerage account (also called an after-tax or non-qualified account).
Here’s why these accounts are so useful in retirement:
This gives retirees a great deal of flexibility in how and when they generate income — and how much of it gets taxed.
Before diving deeper, it's important to understand the two main types of taxes in retirement:
In 2025, if you're married filing jointly and your AGI is below $96,700, any long-term capital gains you realize fall into the 0% tax bracket.
Even better, with the standard deduction (which is $31,500 for a couple in 2025), your gross income can be as high as $128,200 and still pay no capital gains tax.
This is where the opportunity for tax gain harvesting shines.
Let’s walk through an example to see this strategy in action:
Now, suppose they’re not taking Social Security or drawing from their IRAs yet. Their ordinary income is $0.
That means they can sell up to $256,400 of investments from their brokerage account, and only $128,200 (the capital gains portion) would count toward their AGI — keeping them below the 0% threshold.
✅ Result:
They generate $256,400 in cash, all while paying $0 in federal income taxes.
What if you don’t actually need the money this year?
You can still use tax gain harvesting to your advantage by:
This resets your cost basis higher, meaning less of the future sale will be taxable.
It’s like giving your portfolio a fresh start at a higher tax baseline — which can be incredibly valuable for later in retirement.
Too often, retirees overlook taxable brokerage accounts in favor of IRAs or Roth IRAs. But the flexibility and tax benefits can be significant, especially if you plan carefully.
Taxable accounts:
All of this makes them an essential piece of a modern retirement income strategy.
While this strategy is powerful, it’s important to avoid a few common pitfalls:
This is why tax planning should be an ongoing part of your retirement planning process — not just something you check at tax time.
The best time to take advantage of tax gain harvesting is typically in the early years of retirement, when you have control over your income:
This “retirement income valley” is often the sweet spot to do strategic tax planning — and tax gain harvesting is one of the most effective tools available.
If you’re considering this strategy, here’s how to get started:
If you’re unsure whether tax gain harvesting fits into your plan — or how to implement it without triggering other tax consequences — working with a tax-focused retirement planner can help.
At Spark Wealth Advisors, we specialize in helping retirees build custom retirement income plans that minimize taxes and maximize flexibility.
➡️ [Click here to schedule your free intro call.]
For a printable reference of:
📄 [Download the free cheat sheet here.]
Tax gain harvesting is a legitimate and overlooked way to generate tax-free retirement income without relying solely on Roth accounts. If you have a taxable brokerage account and low income early in retirement, you could save thousands in taxes and extend the life of your portfolio.
Don’t wait until tax season to plan — make taxes a central part of your retirement planning strategy.
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