Tax Loss Harvesting
What Is Tax-Loss Harvesting?
You intentionally sell an investment in taxable accounts at a loss in order to:
Offset realized capital gains
Reduce ordinary income (up to annual limits)
Carry unused losses forward indefinitely
You then usually reinvest immediately into a similar (but not “substantially identical”) investment, so your portfolio remains invested.
TLH Matters in Retirement
In accumulation years, TLH is often nice-to-have. In retirement, it becomes more strategic because losses can offset:
portfolio rebalancing gains,
home-sale related gains (if applicable),
concentrated stock diversification,
future taxable withdrawals,
capital gain harvesting,
and potentially reduce IRMAA exposure indirectly.
Most Important Years for TLH in Your Plan
RE@60 to @70
This is likely your prime TLH window because you will likely have:
lower earned income,
active taxable withdrawals,
Roth conversions,
and still meaningful taxable investments.
These years are ideal for:
harvesting losses during volatility,
offsetting capital gains,
and controlling AGI.
Especially Important During Early Retirement Bear Markets
Hypothetically, if equities fall 25% for 3 years early in retirement, then that environment is precisely where TLH becomes highly valuable.
Example:
market drops,
taxable account declines,
you harvest losses,
later markets recover,
future gains can be offset.
This improves after-tax recovery efficiency.
Assets Most Suitable for TLH are broad Equity ETFs / Index Funds.
Examples include:
total market funds,
S&P 500 funds,
international index funds.
These are ideal because:
temporary volatility is common,
easy replacement funds exist,
low transaction friction.
Tax-loss harvesting (TLH) can be a meaningful secondary optimization tool in one’s plan — not as valuable as Roth conversion strategy, but still potentially worth tens or even hundreds of thousands of dollars over a multi-decade retirement.
TLH should be viewed as a volatility-driven tax-management tool that complements withdrawal sequencing and Roth conversion planning.
It becomes especially valuable because:
you will likely have ongoing taxable brokerage exposure,
you may realize gains strategically,
and early retirement sequence risk increases the probability of temporary market declines.
Important Principle
Tax-loss harvesting only applies to taxable brokerage accounts.
It does NOT apply inside: IRAs, Roth IRAs, 401(k), 403(b), HSAs, 529s.