Transcript:
Hi, I’m Jeremy Riggs, certified financial planner at Bass Wealth Management.
Let’s talk about something that frustrates a lot of retirees. You and the couple next door might live on the same income, yet their tax bill is a fraction of yours. They’re not cheating; they’ve simply figured out how the rules work, and they use those rules to keep more money in their pockets.
Believe it or not, taxes are one of the few levers you can still pull in retirement. Today, I want to talk to you about three mistakes that cost retirees real dollars. Stick around for the third one; most people see it coming, but there’s a twist that trips them up.
Mistake One: Ignoring the 0% Bracket for Long-Term Capital Gains
We all know capital gains are usually taxed at 15%. What surprises many retirees is there’s a slice of the tax code where the rate is actually zero.
In 2025, if you file single and your taxable income (that’s after deductions) stays below roughly $48,000, or below $97,000 if you file jointly, any long-term gains or qualified dividends that fall inside that range are taxed at zero on the federal return.
Picture this: Joe is 62, single, and wants to live on $75,000 this year. He has three buckets of money: a traditional IRA, a Roth IRA, and a brokerage account that grows nicely over time. Joe starts by pulling $15,000 from the IRA. After the standard deduction, that IRA withdrawal is wiped out for tax purposes. He still needs $60,000 to hit his spending goal, so he heads to the brokerage account.
Remember, only three-quarters of every sale in that account is a gain; the rest is money he put in. Joe sells $60,000 of stock. $15,000 is just his own basis coming back. $45,000 is long-term capital gains. Add that $45,000 to the $15,000 he already withdrew, and Joe’s taxable income is under the $48,000 threshold. He enjoys $75,000 of cash flow and pays $0 in federal income taxes.
That maneuver is called tax gain harvesting. It’s the cousin of loss harvesting, but instead of locking in losses, you’re deliberately realizing gains while you’re still in the 0% window.
Mistake Two: Stumbling into the Social Security Tax Torpedo
To see the torpedo in action, you need to understand provisional income. In plain English, that’s half your Social Security benefit plus most other sources of income.
As provisional income rises, the share of your benefit that becomes taxable jumps from zero to 50% and eventually to 85%. It doesn’t happen smoothly; there’s a steep cliff, hence the torpedo metaphor.
Imagine Joe again, but this time he’s married. Together, they receive $50,000 a year from Social Security. They pull $6,000 from an IRA. Their provisional income is half the Social Security, $25,000, plus the $6,000 withdrawal, for a total of $31,000. Because they’re below $32,000, none of that Social Security is taxed. Their adjusted gross income shows just the $6,000. After the standard deduction, their federal tax bill is zero.
Now, suppose Joe decides to take $40,000 from the IRA instead of six. That single move rockets provisional income to $65,000. Suddenly, $23,000 of their Social Security becomes taxable, pushing their adjusted gross income past $63,000. They slide into the 12% bracket on paper, but each extra dollar they pull from the IRA drags in 85 cents of Social Security that was previously untaxed. The effective rate on that incremental money isn’t 12%; it’s north of 22%.
That’s the torpedo: a silent doubling of the rate that you thought you were paying. Roth conversions or bigger IRA withdrawals can still make sense in that zone. Sometimes paying 22% today beats paying an even higher rate later, but you have to run the numbers with the torpedo in mind.
Mistake Three: Converting the Wrong Amount to Roth
Most people worry about missing the Roth conversion train. And yes, failing to convert can leave money on the table. But I see as many folks who charge down the aisle and over-convert, handing the IRS a check that never needed to be written.
Take John and Sally. They retire with $2.5 million in a traditional IRA and another chunk in a taxable account. If they leave the IRA untouched, required minimum distributions (RMDs) in their 70s will shove them well into the 24% bracket and beyond. Filling the 12% bracket with strategic conversions in their early retirement years can boost their after-tax net worth by almost seven figures. Perfect use case.
Now, flip the numbers. Suppose Jon and Sally had only $250,000 in the IRA and the rest in a taxable account. Future RMDs barely nudge them out of the lower brackets. If they still convert all the way up to the 12% every year, they actually finish retirement with less wealth. Same tactic, opposite result, because their starting balance and future tax picture are totally different.
The sweet spot is personal. It depends on how much sits in pre-tax accounts, how fast those accounts may grow, what your spending looks like, how the tax brackets line up after RMDs, and the widow or widower scenarios. Converting a little feels safe, but too little or too much can cost money in the end.
Bringing It Home
So, three takeaways wrapped up in everyday English:
Know the 0% capital gains window and decide each year whether to harvest gains while you can.
Watch provisional income so the Social Security torpedo doesn’t blindside you.
Treat Roth conversions like Goldilocks: Too little or too much hurt. Aim for “just right” based on your future brackets, not your neighbor’s.
Taxes won’t ever be fun, but they are one of the levers you can actually control after you stop working. Pull the right ones and keep more of your money to spend on the parts of retirement that matter.
Thanks for listening. If you’d like a deeper dive into any of these strategies, let’s talk. But for now, keep one eye on your investments and the other eye on the tax code. It pays.
