Are your required minimum distributions causing unexpected tax headaches? What if I told you that there’s a little known strategy that could ease that burden and keep more money in your pocket? Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to guide you to a successful, stress-free retirement while spending more and avoiding being killed in taxes.
Today, we’re diving into a strategy that many retirees overlook: tax loss harvesting in your brokerage account to offset the impact of your RMDs.
Understanding the challenge: Once you hit age 73, the IRS mandates withdrawals from your traditional IRA or 401k. These are your RMDs. The catch: Every dollar withdrawn is taxed as ordinary income, which can push you into a higher tax bracket and increase your Medicare premiums.
The overlooked solution is tax loss harvesting. Here’s how it works. Step one, identify underperforming investments. Review your taxable brokerage account for investments that have declined in value.
Step two, sell to realize losses. Sell these investments to realize a capital loss. This loss can offset any capital gains you’ve realized during the year.
Step three, offset ordinary income. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset ordinary income, including income from RMDs.
This video got you thinking about your own retirement planning. I’d like to offer you something to help you see the bigger picture. We’ve created a tax-smart comprehensive retirement workbook for pre-retirees and retirees. If there’s one thing I’ve noticed in my years of working with individuals, it’s that there’s always at least one aspect in the planning process where they say, “Hm, I haven’t thought about that before.”
No matter how smart they are, how much they’ve saved, something comes up, whether it be they realize they can spend more than they thought they could, they realize their tax bill is going to be high in retirement, they are going to leave money on the table with their current Social Security claiming strategy.
This workbook is designed to help you walk through the most critical areas of retirement planning with action steps, false beliefs, and areas for you to input your own reflection items. You can download the workbook by going to the link below in the description.
If you have any issues with that link, send us an email at contact@bocaretirement.com. If you get through this workbook and you’d like your responses reviewed or have any questions, I’m happy to have that conversation with you, too. As always, this is no cost, no obligation, and no pressure. Best of luck.
Step four, carry forward remaining losses. Any remaining losses can be carried forward into future years, providing ongoing tax relief.
Here’s a practical example. Imagine you have a tech ETF that’s down $20,000. You sell it, realizing the loss, and immediately purchase a similar but not substantially identical ETF to maintain your market exposure. The $20,000 loss first offsets any capital gains. If you have no gains, $3,000 of that loss can offset your RMD income this year, and the remaining $17,000 carries forward to offset future gains or income.
Some important considerations would be the wash sale rule: Avoid purchasing the same or a substantially identical security within 30 days before or after the sale to ensure your loss is deductible. Strategic timing: Consider harvesting losses throughout the year, not just at year end, to maximize opportunities.
By strategically harvesting losses, you can reduce your taxable income and potentially lower your Medicare premiums and keep more of your hard-earned money. It’s a tax-proactive approach to managing the tax impacts of RMDs.
If you have any financial questions, you can send them in to contact@bocaretirement.com. Thanks for watching. Bye.
Before you go, if you’re looking for a free tax-smart retirement plan tailored to your unique specific situation, you can head over to our website at bocaretirement.com. Enter your information in the popup and we’ll build you a plan tailored to your unique specific situations at no cost or obligation.
If for some reason that popup doesn’t show for you, if you click out of it, no worries. Just send us an email at contact@bocaretirement.com. Again, that’s no cost, no obligation. We’ll put together a simplified plan for you to help you take the next steps towards a successful, stress-free retirement with more money and fewer taxes. See you over there. Bye.