Personal Finance

I'm about to retire and have a $6 million nest egg - what is the most efficient way to keep my tax bill low in retirement?

Marc Guberti

Published: March 11, 2025 9:26 am

Retirees aim to live on their nest eggs, and minimizing taxes can help with that. Many people in this situation look for ways to withdraw money from their retirement accounts while minimizing the tax burden. 

One Redditor posted in the Chubby FIRE community about their goal to pay a 0% capital gains tax on their withdrawals. The individual is retiring with approximately $6 million in their portfolio and has yearly expenses of $200k. 

I will share my thoughts, but it is good to speak with a financial advisor if you can.

Long-Term Capital Gains Tax Brackets

The amount of taxes you pay on long-term capital gains depends on your filing status and your modified adjusted gross income. A lower income increases the likelihood that you pay no capital gains taxes on your withdrawals. Here’s the breakdown of how long-term capital gains are taxed for married couples:

• 0% long-term capital gains tax rate: $0 to $94,050
• 15% long-term capital gains tax rate: $94,051 to $583,750
• 20% long-term capital gains tax rate: $583,751 or more

The Redditor can capitalize on a $30k standard deduction, which will make it easier to stay below the $94,050 threshold. The individual is also making smart financial decisions to minimize expenses, such as avoiding dividends, trimming the mortgage to reduce the monthly cost, and focusing on low capital gains and capital losses when liquidating positions.

It Depends on the Cost Basis

One commenter mentioned that the original poster’s cost basis on stock positions depends on how much they can withdraw. Using the $30k standard deduction, the Redditor can realize up to $126,700 in long-term capital gains without paying any taxes. If the Redditor has positions with 20% and 30% long-term capital gains, they can sell off those positions and reach $200k in withdrawals without exceeding $126,700 in long-term capital gains. 

The Redditor can focus on small capital gains first. It may be beneficial to mix in some of the positions with higher capital gains if it wouldn’t bump their long-term capital gains above $126,700. That way, you haven’t exhausted all of your positions, which can net relatively low capital gains for future years. 

Check Local Tax Rules

While this strategy works for federal taxes, each state has different rules. Some states have a similar structure that lets you avoid long-term capital gains tax if you meet requirements, while others have different rules. 

One commenter mentioned that Nebraska charges a 6.8% tax on long-term capital gains. However, Nebraska also has a rule where state taxes are limited to the smaller of federal or state taxes. If you pay no federal taxes on long-term capital gains, you also won’t pay any Nebraska state taxes on long-term capital gains. It’s good to check your state’s rules and work with a tax professional who can keep you informed of any potential changes. 

Roth Withdrawals Make It Even Easier

It’s best to start with traditional IRA withdrawals to reduce the amount of long-term capital gains that are still in your portfolio. However, you may have some years where withdrawing $200k requires reporting more than $126,700 in long-term capital gains.

A Roth account can keep your modified adjusted gross income below this range since you don’t pay any taxes on Roth withdrawals or capital gains. You shouldn’t rush to withdraw funds from a Roth retirement account since the gains aren’t taxed, but it is an option to consider. It’s better to deplete your traditional retirement accounts first so your heirs don’t have to inherit them. Giving them Roth retirement accounts will reduce their tax burden.