Almost every portfolio will one day need to support a steady withdrawal as your savings turns into your retirement money. However, to turn your investments into money you can spend, some securities need to be sold. Every time a security is sold in a taxable account, if it is worth more at the time of sale than you originally paid for it, the “gain” is taxable. This so-called capital gain is taxable in various tax brackets, ranging from a base of 0% to 20%.
If you wait to sell any securities until the day you make a withdrawal, chances are you will be forced to realize some rather large capital gains all in one year. After all, the markets trend upward and, over large time periods, double every 7 to 10 years.
There are many techniques to manage your capital gains for smart tax planning.
For clients in the 0% capital gains tax bracket, intentionally realizing some gains each year can keep taxes relatively low.
For others, we have many strategies for avoiding paying the capital gains tax.