Ever heard the adage "Don't let the tax tail wag the investment dog"? IMO, not such good advice for ER's. This topic may be old hat for some of you, but it did not dawn on me until recently.
Our situation: DW will retire next year, I am already retired. I will be 57, DW will be 55. We will have between 5 and 15 years before we collect SS (likely toward the end of that range). We do not have pensions, will have no earned income, and have both taxable and tax deferred investment accounts. Have over $400k in LT cap gains in taxable accounts. We file a joint tax return, take the standard deduction (no mortgage) with 2 exemptions.
Strategy: To the extent that is practical, I will postion my taxable portfolio to "reduce" dividend income starting next year. Then sell enough holdings to generate about $90,000 of capital gains (less the dividends that are distributed during the year). The tax on the CG would be zero as opposed to 15-28% (marginal rates). Do this every year until the CG are mostly exhausted. After that, pull $ from tax-deferred accounts (up to $90k MAGI) of which would be taxed at 15%. Should be able to keep doing this for 15 years, unless the tax laws change.
One recent caveat is the ACA (Obamacare). Might need to keep MAGI below $60k to get larger subsidy on HI, but it still may be more advantagous to take the exta $30k of income with zero CG rate.
Anyone see any holes in this strategy? There must be some, or a lot of people would be doing it (maybe they are?). Thoughts?
Our situation: DW will retire next year, I am already retired. I will be 57, DW will be 55. We will have between 5 and 15 years before we collect SS (likely toward the end of that range). We do not have pensions, will have no earned income, and have both taxable and tax deferred investment accounts. Have over $400k in LT cap gains in taxable accounts. We file a joint tax return, take the standard deduction (no mortgage) with 2 exemptions.
Strategy: To the extent that is practical, I will postion my taxable portfolio to "reduce" dividend income starting next year. Then sell enough holdings to generate about $90,000 of capital gains (less the dividends that are distributed during the year). The tax on the CG would be zero as opposed to 15-28% (marginal rates). Do this every year until the CG are mostly exhausted. After that, pull $ from tax-deferred accounts (up to $90k MAGI) of which would be taxed at 15%. Should be able to keep doing this for 15 years, unless the tax laws change.
One recent caveat is the ACA (Obamacare). Might need to keep MAGI below $60k to get larger subsidy on HI, but it still may be more advantagous to take the exta $30k of income with zero CG rate.
Anyone see any holes in this strategy? There must be some, or a lot of people would be doing it (maybe they are?). Thoughts?