Tax-Loss Harvesting and Year-End Tax Planning Turning Market Volatility into Opportunity

Retirees often see volatility as a threat to hard-earned nest eggs, but with careful tax planning, it can also be an opportunity. As 2025 draws to a close, savvy tax moves—especially tax-loss harvesting—can make a measurable difference in your after-tax income, portfolio sustainability, and peace of mind.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is the strategic selling of investments that have declined in value, often in taxable brokerage accounts, to realize a loss. These realized losses offset capital gains from other sales, thus reducing your taxable income for the year. If your capital losses exceed your gains, you can use up to $3,000 per year to offset ordinary income and carry unused losses forward indefinitely.

Why It Matters for Retirees

Many retirees rely on a combination of withdrawals, dividends, and capital gains. Large gains may push you into a higher tax bracket, potentially affecting Medicare premiums and Social Security taxation. Tax-loss harvesting can help smooth taxable income, preserve eligibility for important tax credits, and help avoid unpleasant surprises come tax time.

Harvesting Losses: Step-by-Step

Identify Investments Trading Below Purchase Price: Review holdings in your taxable accounts—these are eligible for harvesting. Retirement accounts like IRAs and 401(k)s do not directly benefit from this strategy.

• Sell to Realize the Loss: Take care not to trigger a “wash sale,” which occurs if you buy the same or a substantially identical security within 30 days before or after the sale. Wash sales disqualify the loss for tax purposes.
• Reinvest Prudently: Consider investing the proceeds in similar (but not identical) assets to maintain your allocation and market exposure without violating the wash-sale rule.

Beyond Harvesting: Additional Year-End Tax Moves

• Maximize Retirement Contributions: Even after retirement, continued IRA or other plan contributions (if eligible) can reduce this year’s taxable income.
• Roth Conversions: Partially converting traditional IRA assets to a Roth can be valuable in lower-income years—locking in today’s potentially lower tax rates before future tax laws change.
• Required Minimum Distributions (RMDs): Missing your RMDs by Dec. 31 can result in steep IRS penalties. Consider using Qualified Charitable Distributions (QCDs) to satisfy RMDs while also reducing taxable income if you’re charitably inclined.
• Charitable Giving: Bunch charitable donations into a single year to surpass the standard deduction and maximize deductibility.

 

Don’t Forget Medicare and Social Security Effects

Taxable income levels influence premiums for Medicare Parts B and D, as well as the proportion of Social Security subject to taxation. Smart tax planning today can help avoid increased costs or reduced benefits in 2026.

 

Common Tax Pitfalls to Avoid

• Triggering the alternative minimum tax (AMT) via excessive deductions or capital gains.
• Overlooking potential state tax impacts, especially if living in or moving between states.
• Forgetting to coordinate tax moves with your withdrawal strategy, possibly increasing your marginal tax rate unintentionally.

 

Leverage Professional Guidance

Tax loss harvesting and year-end planning must be individualized. Work with a knowledgeable advisor or CPA to ensure all moves fit your broader retirement and estate plan, comply with IRS rules, and don’t generate unexpected downside.

 

Copyright © 2025 Financial Media Exchange. All rights reserved.
Distributed by Financial Media Exchange.

 

 

 

 

 

 

 

 

 

 

 

 

 

This material is published and distributed by Financial Media Exchange for informational and educational purposes only. It is not intended as investment advice or a recommendation to buy or sell any security.

 

Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Forecasts and expectations are based on current data and are subject to change without notice.

 

The information presented is believed to be reliable but is not guaranteed. Financial Media Exchange and its affiliates do not receive compensation related to the companies, industries, or investment themes discussed. You should consult your own financial professional before making any investment decisions.

 

This content complies with SEC Rule 206(4)-1 and FINRA Rule 2210 governing educational communications, and it does not promote any specific products, services, or investment strategies.