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Capital Gains Tax Strategies for Seniors
Smart takeaways to potentially keep more of your retirement gains:
Standard Rules Apply
The once-exclusive home-sale tax break for people over 55 now applies to everyone.
Hold Longer, Tax Less
Focusing on long-term investments may help keep realized gains in lower tax brackets.
Use Smart Shelters
Tax-advantaged accounts and strategic loss-offsetting may be viable options for retirees to curb capital-gains tax exposure.
Advisors May Offer An Advantage
A fiduciary financial advisor may be able to help weave these tactics into a broader retirement-tax strategy. You can get matched with one in minutes by clicking here.
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Smart Takeaways
- Standard rules apply: The once-exclusive home-sale tax break for people over 55 now applies to everyone.
- Hold longer, tax less: Focusing on long-term investments may help keep realized gains in lower tax brackets.
- Use smart shelters: Tax-advantaged accounts and strategic loss-offsetting may be viable options for retirees to curb capital-gains tax exposure.
- Advisors may offer an advantage: A fiduciary financial advisor may be able to help weave these tactics into a broader retirement-tax strategy. You can get matched with one in minutes by clicking here.
June 2025
Planning for retirement taxes can be crucial to effectively managing your finances once you’ve left the workforce, especially if you’re still investing to grow your wealth. It’s important to understand your retirement income streams and the associated tax implications.
For example, if you’re 73 and have taxable investment accounts, a 401(k) or IRA, and Social Security benefits, the combination of capital gains tax, required minimum distributions (RMDs) tax and any taxable Social Security benefits could potentially push you into a higher tax bracket.
That’s why minimizing capital gains tax can be an important step to maximizing your retirement income. A fiduciary financial advisor can help you optimize a tax strategy and identify savings opportunities to lower your tax liability.
Consulting a fiduciary financial advisor can be a great first step to helping make sure you’re on track to meet your financial goals, regardless of your income level.
Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.1
A 2023 Northwestern Mutual study found that 66% of U.S. adults admit their financial planning needs improvement. However, only 37% of Americans work with a financial advisor.2
Net worth from age 45 to 77
Final lifetime net worth with and without a financial advisor.
Disclaimer: This example demonstrates the potential final lifetime portfolio value, accounting for estimated investment returns, tax savings and inflation over different life stages for an individual starting with $500,000 at age 45, through age 77. Under a set of core assumptions, this consumer profile is projected to have a final lifetime portfolio value of approximately $3.24 million if retaining the services of a financial advisor – not accounting for additional savings or portfolio withdrawals – versus a final estimated lifetime portfolio value of $1.56 million without the services of a financial advisor. This example is based on the valuation framework presented in SmartAsset's whitepaper “The Value of a Financial Advisor: What's It Really Worth?” (Nov. 2024). The value of professional financial advice is only an illustrative estimate and varies with each unique client's individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing a financial advisor.
Disclaimer: This example demonstrates the potential final lifetime portfolio value, accounting for estimated investment returns, tax savings and inflation over different life stages for an individual starting with $500,000 at age 45, through age 77. Under a set of core assumptions, this consumer profile is projected to have a final lifetime portfolio value of approximately $3.24 million if retaining the services of a financial advisor – not accounting for additional savings or portfolio withdrawals – versus a final estimated lifetime portfolio value of $1.56 million without the services of a financial advisor. This example is based on the valuation framework presented in SmartAsset's whitepaper “The Value of a Financial Advisor: What's It Really Worth?” (Nov. 2024). The value of professional financial advice is only an illustrative estimate and varies with each unique client's individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing a financial advisor.
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What Are Capital Gains Taxes?
Capital gains are the profits you make by selling an investment asset.
When you buy an investment asset, the original price you pay for it is known as the asset’s cost basis. When you sell that asset, you compare its sale price to its cost basis. If you made money, this is known as a “capital gain.” If you lose money, it’s a “capital loss.”
Unlike ordinary income, money you earn through work or by selling the product of your work, capital gains are subject to their own set of taxes.
If you sell an asset after holding it for less than a year, your capital gains will be taxed as ordinary income.
Remember, the capital gains tax rate applies only to the income that’s realized when you sell an asset. If you have a mix of earned income and capital gains, you must calculate each set of income based on its relevant tax bracket. If you have both capital gains and capital losses in a single tax year, you may deduct your losses from your gains when you calculate your taxes.
Consider consulting a financial advisor to determine how your potential gains may be classified so you can better know what to expect when taxes are due. Click here to get matched with vetted fiduciary financial advisors who serve your area.
Capital Gains Taxes and Seniors
Social Security payments and retirement account withdrawals can be the two primary sources of income for many retirees.
In some cases, retirees may supplement this income by selling their homes to generate a significant amount of one-time income. Before it was amended in 1997, the IRS allowed people over age 55 to be exempt up to $125,000 worth of profit from the sale of their primary residence from their capital gains taxes. This exemption now applies to all homeowners.
In other words, seniors can still take advantage of this tax benefit when selling their home, but it’s no longer exclusive to being a senior. Beyond this, only retirement account contributions may allow for tax breaks related to age.
However, there are still many tax deductions and other strategies seniors may want to consider that could potentially help reduce capital gains tax. Read on to learn more.
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1. Choose Long-Term Investments
Capital gains can be classified as either short-term or long-term, each of which has its own tax rates.
Assets you have held for less than a year are considered short-term. When it comes to earning short-term gains, expect to be taxed at your ordinary tax rate. This can be as high as 37%, depending on your total taxable income.
If you want to avoid that, you should consider choosing long-term investments instead. By holding an investment for a year or more, you will qualify for long-term capital gains tax rates.
Most long-term capital gains will see a tax rate of no more than 15%, though certain assets (like coins and art) can be taxed at a rate up to 28%. Depending on your income, you may even qualify for capital gains tax rates as low as 0%.
2. Take Advantage of Tax-Deferred Retirement Plans
Your retirement accounts likely make up a bulk of your savings and future assets. It’s wise to optimize these as best you can by utilizing tax-deferred (and tax-exempt) plans, to save yourself from added capital gains taxes.
When contributing to a tax-deferred retirement plan, such as a 401(k) or traditional IRA, you’ll receive a tax deduction on your contributions in the current tax year. This can save you money on your income taxes today, as well as help you save even more toward the future.
Your money can also grow over time. When you’re finally ready to sell your investments and withdraw, any growth in the account is taxed at your ordinary income rate, rather than being subject to capital gains like other investment accounts.
A tax-exempt account, such as a Roth IRA, doesn’t offer any tax benefits today, but grows tax-free until retirement. When you’re ready to use the money, your funds (and growth) can also be withdrawn tax-free, helping you avoid capital gains yet again.
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3. Offset Your Gains
If you hold a number of different assets, you may be able to offset some of your gains with any applicable losses, allowing you to avoid a portion of your capital gains taxes.
For instance, if you have one investment that is down by $3,000 and another up by $5,000, selling both will help you reduce your gains. You would only be subject to capital gains taxes on the difference – or $2,000 – rather than the full $5,000 gain of the second investment.
Another offset strategy is tax-loss harvesting. With this method, you can carry over losses from one tax year into the next, to help offset future gains. Tax loss harvesting only applies if your losses in a given year exceed your total gains.
How Seniors Can Get Help Formulating a Tax Strategy
The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. But you can still look for ways to reduce the amount of taxes you will pay in retirement.
If you’re looking for a way to decrease your tax burden, we recommend finding a financial advisor. They can help you understand your options and look for ways to save money on your tax bill, make smart investments and plan for retirement.
Consulting a fiduciary financial advisor could help you determine a plan that factors your assets and taxes into your overall retirement goals. Fiduciaries are obligated by law to act in your best interest and any potential conflicts of interest must be disclosed.
Yet knowing how to find a vetted fiduciary advisor is, for many, the most confusing task of all. Common Google searches related to the topic reveal a desperate search for direction. "Fiduciary financial advisors near me,” "best fiduciary financial advisor,” and "financial investment advisors near me” are searched hundreds of times per day.
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This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.
SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments.
We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.
SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments.
We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors.
Sources:
1. "Journal of Retirement Study Winter" (2020). The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
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