Most retirees think the key to low taxes in retirement is stuffing as much as possible into IRAs and 401(k)s. That helps—but there’s a lesser‑known lever that can be even more powerful when used correctly: a taxable brokerage account. With the right strategy, you can withdraw tens of thousands of dollars at 0% federal tax, harvest gains tax‑free, and control how much income shows up on your tax return—especially before claiming Social Security.

This guide turns those ideas into a clear, step‑by‑step plan for Brian (60) and Emily (58) Carter from Spokane, WA, based on their profile:

• Target retirement: 62 (Brian), 60 (Emily)
• Spending goal in retirement: $80,000/year (today’s dollars)
• Investable retirement assets: $244,000
  • 401(k): $112,240
  • Traditional IRA: $39,040
  • Roth IRA: $39,040
  • Taxable brokerage: $34,160
  • HSA: $9,760
  • Cash/MMFs: $9,760
• Pension: none
• Home: $360k value, $162k mortgage (≈$198k equity)
• 529: $8,000
• Social Security estimates at 67: Primary $2,150/mo, Spousal $1,290/mo (final spousal depends on SSA calculations)

Washington has no state income tax, which makes federal optimization even more impactful.

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Why Taxes in Retirement Are Really Two Different Systems

1) Ordinary Income

This includes IRA/401(k) withdrawals, pensions, wages, interest, and up to 85% of Social Security. It flows through tax brackets like 10% → 12% → 22% → 24% → … After age 73, RMDs force you to take ordinary income whether you need the money or not.

2) Long‑Term Capital Gains (LTCG) & Qualified Dividends

Sell investments you’ve held for >1 year and your gains are taxed at 0% / 15% / 20%, depending on taxable income. For many married retirees filing jointly, LTCGs and qualified dividends can be taxed at 0% when taxable income is under the 0% LTCG ceiling (using 2024 thresholds as planning anchors).

The Standard Deduction Shield

Before any income is taxed, retirees get the standard deduction (2024 figures):

• Married Filing Jointly, 65+: $32,300
• Single, 65+: $16,550

This is crucial because you can “fill” this deduction with ordinary income (like Roth conversions) and pay little or no federal tax, then layer LTCGs on top that still fall into the 0% bucket.

Hidden Gem: In the years before Social Security and RMDs, you can engineer how much of each type of income shows up. That’s when taxable accounts shine.

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The Carters’ Multi‑Phase Roadmap

Phase 1 — Now → Retirement (ages 60/58 to 62/60)

Goals: Build flexibility, set up the taxable account for low‑tax withdrawals, and plan the Social Security timeline.

Action Steps:

• Direct new savings into taxable, not more pre‑tax, to create a flexible source of cash and LTCGs you can control.
• Asset location tune‑up:
  • IRAs/401(k): hold income‑heavy or ordinary‑dividend assets (REITs, many bond funds, covered‑call ETFs).
  • Taxable: hold broad equity index funds/ETFs with qualified dividends and low turnover.
• HSA: If plan allows, invest the HSA and save receipts for future tax‑free reimbursements. Treat it like a stealth Roth for healthcare.

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Phase 2 — The Low‑Income Window (retire at 62/60 → before starting Social Security)

This is the most valuable planning window. Income is naturally low, which lets you:

1. Harvest long‑term capital gains at 0% and reset your cost basis.
2. Convert a slice of IRA/401(k) to Roth each year, ideally filling the standard deduction and spilling into the 12% bracket—while minimizing the push on your LTCGs.

How to structure a typical pre‑SS year:

1. Set your spending target: $80,000 (today’s dollars; adjust each year for inflation).
2. Estimate ordinary income: interest, part‑time wages—often close to zero in this window.
3. Choose a Roth conversion target (e.g., $30k–$50k).
   • The standard deduction shields a big chunk.
   • Any remainder likely taxed at 12%—a good trade if it reduces future 22%+ taxes in RMD years.
4. Calculate remaining room under the 0% LTCG ceiling and realize LTCGs up to that level.
5. Sell taxable holdings to generate your $80,000 cash need. The proceeds are a mix of non‑taxable basis + LTCG (often at 0%).
6. Tax‑gain harvest extra (optional): sell and immediately rebuy positions to step up basis—no wash‑sale issue for gains.
7. Repeat annually until Social Security starts.

Result: You fund your lifestyle with little or no federal tax, shrink pre‑tax balances at low rates, and reduce future RMDs—a triple win.

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Phase 3 — Start Social Security (target 67–70)

Delaying Social Security creates more years to harvest gains at 0% and convert to Roth at low rates, and it increases your checks—especially valuable for the survivor benefit. We’ll confirm the optimal claiming age after reviewing PIA letters and running longevity and tax projections.

Key point: Once Social Security starts, ordinary income (like IRA withdrawals) can make more of your Social Security taxable. That’s another reason to do the heavy lifting earlier.

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Phase 4 — After Social Security, Before RMDs

Priorities: Keep ordinary income modest to limit taxable Social Security, consider smaller Roth conversions if still beneficial, and continue selective gain harvesting in taxable when it won’t push you into unfavorable Social Security taxation.

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Phase 5 — RMD Years (age 73 under current law)

Thanks to earlier planning, your RMDs are smaller. The withdrawal order typically becomes:

1. Taxable (for basis and controlled gains)
2. RMDs (since required)
3. Roth IRA last (let it grow; it’s your most tax‑efficient longevity and legacy asset)

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The Carters’ Withdrawal Order (Playbook)

1. Taxable Brokerage first
   Use sales to generate cash; proceeds include basis (not taxed) + LTCG (often 0% in your window).
   Favor qualified‑dividend funds here.
2. Roth Conversions during the window
   Convert enough each year to fill the standard deduction and often the 12% bracket—but watch the interaction with the 0% LTCG ceiling. Aim to avoid pushing gains into 15% more than necessary.
3. Start Social Security after your conversion/harvest window
   Choose the age that optimizes lifetime benefits, survivor protection, and overall tax.
4. IRA/401(k) withdrawals later (and satisfy RMDs)
   By then, balances should be reduced from prior conversions.
5. Roth IRA last
   Preserve for late‑life flexibility and estate planning.

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How the “0% LTCG” Magic Funds $80,000 of Spending

Let’s say in a pre‑SS year you:

• Convert $40,000 from IRA to Roth. The standard deduction shelters a large portion; the rest is likely 12%.
• Then you realize LTCGs up to the 0% cap (exact number varies each year based on brackets and your dividends).
• You sell enough taxable holdings to generate $80,000 cash. Those sales include basis (untaxed) and gains (often taxed at 0% that year).

Net effect: You fund a full year of spending, pay minimal federal tax, and raise your taxable cost basis to make future withdrawals even more tax‑efficient.

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Dividend Positioning: A Quiet but Massive Lever

• Qualified dividends (from most US stocks and many broad index ETFs) are taxed at LTCG rates—often 0% in your window.
• Ordinary dividends (REITs, many bond funds, high‑yield covered‑call ETFs) are taxed as ordinary income—crowding out your 0% LTCG room and potentially increasing Social Security taxation later.

Action: Keep ordinary‑dividend generators in IRAs and qualified‑dividend funds in taxable. Same dollars, dramatically different tax outcome.

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HSA: Your Triple‑Tax‑Free Healthcare Bucket

• Contribute pre‑tax, grow tax‑free, withdraw tax‑free for qualified medical expenses.
• Save and organize receipts; you can reimburse yourself years later tax‑free.
• In Medicare years, use for Part B/D premiums, copays, and more.

Treat your HSA like a stealth Roth dedicated to healthcare.

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Mortgage & Real Estate Considerations

With $198k equity and $162k balance, resist the temptation to use large IRA withdrawals to accelerate payoff during your low‑income window—it’s ordinary income and could crowd out your 0% LTCG and Roth conversion capacity. If you choose to prepay, consider using taxable proceeds—if your overall portfolio still safely meets cash‑flow and risk requirements.

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Annual Checklists

Before Social Security

• ☐ Estimate ordinary income (interest, part‑time work).
• ☐ Choose Roth conversion target (fill the standard deduction; then into the 12% bracket as appropriate).
• ☐ Calculate room for 0% LTCGs; harvest gains to that ceiling.
• ☐ Sell taxable to fund spending; rebuy harvested positions to step up basis.
• ☐ Reassess SS start date each year.

After Social Security

• ☐ Keep ordinary income modest to limit taxable SS.
• ☐ Consider small conversions if still tax‑smart.
• ☐ Satisfy RMDs at 73; use Roth last.

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What We Need to Lock In Exact Dollar Targets

To turn this into a precise, year‑by‑year plan for Brian and Emily:

1. Taxable account cost basis (per lot preferred).
2. 1099‑DIV breakdown (qualified vs ordinary dividends).
3. Expected earned income (if any) in each pre‑SS year.
4. SSA PIA letters for both to fine‑tune spousal and delay strategies.
5. Mortgage rate & payment for cash‑flow context and payoff analysis.
6. Risk tolerance & liquidity targets (cash buffer, allocation comfort).

With those, we’ll produce:

• Roth conversion target per year (with bracket guardrails),
• 0% LTCG harvesting amount per year,
• A month‑by‑month cash‑flow schedule, and
• An updated claiming recommendation for Social Security.

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Why This Works So Well for the Carters

• Your taxable brokerage account gives you fine‑grained control over what is taxed and when.
• The low‑income window before Social Security lets you pull significant cash at 0% tax, shrink future RMDs via low‑bracket Roth conversions, and minimize Social Security taxation later.
• You end up paying less tax across your whole retirement, not just this year.

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Final Notes & Assumptions

• Figures for standard deduction and 0% LTCG thresholds here use 2024 numbers as planning anchors. They index for inflation, so we’ll refresh annually before executing.
• Social Security spousal benefits require coordination—Emily’s final amount depends on the SSA’s calculation relative to Brian’s PIA and any benefit on Emily’s own work record. We’ll verify with official SSA documents.
• All numbers shown are illustrative planning mechanics, not tax advice. We’ll tailor the executions to current‑year IRS rules and your exact holdings.

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