One of the first steps a financial advisor will recommend is saving for retirement through accounts like a 401(k) or an Individual Retirement Account (IRA). These accounts are advantageous because gains and dividends are not taxed while you build your nest egg. Most distributions, with the exception of Roth IRAs, are taxed as ordinary income in retirement. For example, based on the 2024 median household income of approximately $83,000, these withdrawals would have an effective tax rate of just under 12%.
With the standard deduction nearly doubled under the Tax Cuts and Jobs Act (TCJA), many people overlook the opportunity to pay a 0% tax rate on long-term capital gains. A long-term capital gain occurs when you sell an asset held for more than one year; assets held for less than a year are taxed as ordinary income.
For the 2026 tax year, the 0% long-term capital gains rate applies to single filers with taxable incomes up to $49,450 and married couples filing jointly with taxable incomes up to $98,900. Given these thresholds, it can be beneficial for those in lower tax brackets to maintain savings in non-retirement accounts. The greatest opportunity to utilize this 0% rate often occurs during the early stages of retirement when household income typically drops and before required distributions begin.
As Benjamin Franklin noted in 1789, “Nothing is certain except death and taxes.” Effective financial planning provides both the confidence to build a future and the flexibility to navigate it. Reach out to Musser Financial Planning to gain clarity on your financial future.