We’re in our 70s. How do we withdraw $6 million from our retirement fund without getting killed on taxes?
“What’s the best move I can make to minimize capital gains? Buy another property or island?” (Photo subjects are models.) – Getty Images/iStockphoto
We are both in our mid-70s and retired. We collect Social Security and pensions; This means we can live comfortably. Our health condition is quite good and we are active. The mortgage-free value of our home is approximately $725,000. We have no debt because we pay our loan debt every month.
I have $600,000 in my IRA and my wife has $300,000. We have approximately $6 million worth of equity investments, all long-term. Some stocks pay dividends of around $90,000 per year. Our son is doing well at his job, but he works from home.
I know that selling my stocks will result in a significant capital gain, but I also don’t want to lose the significant gains I’ve made. I know I can contribute to charity and reduce my tax liability, but that’s not all. What is the best move I can make to minimize capital gains?
To use a cliché, you are a victim of your own retirement success. – MarketWatch image
You are in the third stage of your retirement planning. Accumulation. Mark! Protection and diversification. Mark! And now – drumroll – distribution. The 20% long-term capital gains cap for 2025 is $533,401 for a single person or $600,051 for a married couple filing jointly. Note that for married individuals, the jointly filed net investment income tax kicks in if your income exceeds $250,000.
To use a cliché, you are a victim of your own retirement success. You’ve made such an enormous investment that if you withdraw large sums now, you’ll find yourself facing a huge tax bill. You will never run out of $6 million. But I guess you’ve reached your 70s in relatively good health, and now you’ll be planning your financial legacy. This may include establishing a trust for your son.
If you die before your spouse or if your spouse dies before you, you will be given an increase on some/all of your investments, meaning their value will be calculated based on the date of death. If you live in a community property state (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin), you will receive an increase based on both of your respective shares.
“Under Section 1014 of the Internal Revenue Code, if a person owns property at the time of death, a new basis shall be equal to the fair market value of the property at the time of the person’s death.” Loyalty. “If assets appreciate, the rule allows people to inherit assets such as stocks or real estate without inheriting the tax burden triggered by capital gains.”
“Gifts of stock or real estate appreciated while the owner is still alive generally preserve the owner’s cost basis,” he adds. “If instead the asset is transferred upon the death of the owner, there is a step-up in basis and the recipient is never taxed on the capital gain accrued during the original period of ownership. For example, if your grandchildren inherit your stock portfolio, they will receive it at its fair market value on the date of death.”
Kaycee LeConga CFP and director of financial planning at Brighton Jones, recommends tax-loss harvesting. “If you own any stocks with unrealized losses, selling them to offset gains can help reduce tax liability. With a $6 million stock portfolio, you may consider hiring a direct index manager or a quantitative investing specialist who combines long and short bets on stocks for tax optimization.”
LeCong says charitable contributions and philanthropic groups are other options. “Although you noted that this may not be a big deal, donating appreciated shares directly to a qualified charity can both eliminate capital gains on those shares and provide a tax deduction. Since you don’t have a mortgage, you may want to consider pre-funding 3-5 years of charitable donations to a donor-advised fund.”
For those with large capital gains income, consider qualified opportunity zone (QOZ), says CPA David Silversmith. Reinvesting capital gains within 180 days of the sale of the asset offers two main tax incentives. “The first incentive allows the seller to defer recognition of gains from the sale of the asset,” he says. “If the investor holds the QOF investment for at least 10 years, any capital gains on that investment are permanently exempt from tax upon the sale of the exchange of the QOZ.”
If your son is in a lower tax bracket, gifting appreciated stock can shift his tax burden and reduce your overall liability, he adds. If you are married and the gift is made with your spouse’s consent without triggering gift tax reporting requirements on your annual tax return, the annual gift tax exclusion is $38,000. The 2025 lifetime federal estate and gift tax exemption for a married couple is $27.98 million.
If you have grandchildren, you can also set up a 529 account to help cover their educational expenses and give them the expectation of receiving a college education. You can also use your 529 assets to pay for K-12 tuition of up to $10,000 per student per year at a public, private, or religious school. The annual gift exclusion above also applies to 529 accounts.
Don’t let tax challenges stop you from celebrating your pot of gold. You’re debt-free, you have plenty of liquid (easily accessible) investments, and you can live the retirement of your dreams, take vacations, stay in the house, or do the renovations you’ve always wanted. You are now eligible for Social Security once you reach age 70 and receive maximum benefits plus 8% annually after your Full Retirement Age.
Finally, you can consider partial Roth conversions without exceeding the ceiling of your current tax bracket. The 2025 federal long-term capital gains rates for married couples filing jointly are 0% for taxable income up to $96,700 and 15% for income between $96,701 and $600,050. Consult an advisor if you are making a significant withdrawal.
After discussing all these options with your financial advisor, invest in a hammock and reflect on what you have achieved. Your retirement income alone will be a target for millions of people. You have enough money to make a spot on your bucket list and still leave behind a significant financial legacy for your son and your favorite charities.
