Q: We recently read an article that said we might actually want to sell some stocks or mutual funds to trigger capital gains. It seems awfully strange to us. Can you explain why it makes sense?
A: The idea that you would voluntarily sell something at a gain certainly sounds odd. But it can be really smart for some people. It’s a tax strategy reserved for people with “modest” income. As you’ll see, modesty is in the eye of the beholder.
Specifically, we’re talking about long-term capital gains and also qualified dividends. They simply aren’t taxed when you live in the 12% federal tax bracket. But, you’ll need to plan carefully.
Let’s start with your deductions. In 2025, a married couple filing jointly gets a standard deduction of $31,500. If you happen to be over 65, you also get to add another $1,600 deduction for each of you. And thanks to the new tax law, there’s now also an additional $6,000 “enhanced” senior deduction for both of you for those over 65. That all adds up to a whopping $46,700 in deductions!
Now, let’s say your adjusted gross income – before applying those deductions and also before any possible capital gains – is $110,000. After your deductions, your taxable income would sit at only about $63,000.
Compare this amount to the upper threshold of the 12% tax bracket. That’s about $97,000. You’d have leftover “room” in the 12% bracket for about $34,000 of long-term gains without paying a penny in federal taxes. You can sell and immediately re-buy your holdings, if you want. It effectively resets your cost basis; an almost-free lunch. Remember, your state tax return will include those gains.
Q: I retired earlier this year after working in a high-income career. I just noticed that my Medicare Part B premium is much higher than the standard amount. I’ve learned it’s based on my income from before I retired. But, I’m now earning way less in retirement. Is there anything I can do to get my premium lowered?
A: Yes, absolutely. As background, Medicare Part B premiums are adjusted based on your income. Technically, it’s called the Income-Related Monthly Adjustment Amount (IRMAA, for short.)
They make you pay more than the standard premium once your adjusted gross income exceeds about $200,000. Here’s the catch. They use your income from two years ago to determine your Medicare premium for the current year. This explains why you’re currently paying so much, even as you’re earning way less. They just don’t know it yet.
You can request an adjustment by filing Form SSA-44. The form is meant for certain “life changing events.” Retirement qualifies as one of eight eligible life changing events. If you file one for 2025, you may even get a refund of overpaid amounts this year. Certainly do it for 2026 after you get your annual notice in a few weeks.
By the way, it looks like the standard Medicare Part B premium is going to jump about $20 per month next year. I suspect many retirees are going to be negatively surprised.
