Tax-Loss Harvesting Strategy Guide

Brett R. Henderson, CIMA®, CPFA®, CRPS®, CEPA®, AIF®, CLU®, BFA™ · Tax Planning

Tax-loss harvesting involves realizing losses in taxable accounts to offset capital gains under tax rules. Potential benefits depend on your circumstances, transaction costs, replacement investments and future gains.

Key Takeaways

✓ Tax planning may help reduce taxes, depending on your circumstances.
✓ Timing of income recognition and deductions impacts your overall tax burden
✓ Coordinate tax strategies with your tax and investment advisors.
✓ Tax laws change frequently — ongoing planning is essential

How Tax-Loss Harvesting Works

1. Review investments below their adjusted tax basis.
2. Sell to realize capital loss
3. Use loss to offset capital gains
4. Evaluate replacements that are not substantially identical.

The Wash Sale Rule

Substantially identical purchases within 30 days before or after a loss sale can disallow the loss. Review all relevant accounts.

When Harvesting Makes Sense

Market downturns create harvesting opportunities
Year-end tax planning
Portfolio rebalancing events
High-income years with significant gains

Can I harvest losses in my IRA?

Sales within an IRA generally do not create deductible capital losses. IRA purchases can disallow a related taxable-account loss.

Written by Brett R. Henderson, CIMA®, CPFA®, CRPS®, CEPA®, AIF®, CLU®, BFA™ — Strategic Wealth Endeavor (SWE90), Hermosa Beach, California | Last Updated: September 9, 2026

Common Mistakes to Avoid

Mistake #1: Waiting until year-end to plan
Tax planning should be a year-round activity, not a December scramble
Mistake #2: Ignoring state tax implications
State taxes can significantly impact your overall strategy
Mistake #3: Not coordinating with other advisors
Tax, legal, and financial advisors should work together

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This content is educational and is not personalized investment advice. Investing involves risk, including loss of principal. Past performance does not guarantee future results.

Neither Brett Henderson nor Vanderbilt Financial Group provides tax or legal advice. Please consult with your tax and/or legal advisors regarding your personal circumstances.

Brett R. Henderson is a registered representative of Vanderbilt Securities, LLC and investment advisor representative of Consolidated Portfolio Review. Securities offered through Vanderbilt Securities, LLC. Member FINRA, SIPC. Advisory Services offered through Consolidated Portfolio Review.

Authoritative Sources:

IRS Publication 550: https://www.irs.gov/publications/p550

IRS Topic 409: https://www.irs.gov/taxtopics/tc409

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Authoritative Sources

These primary sources explain capital-loss and retirement-account rules; they do not assure tax savings.

IRS Publication 550: Investment Income and Expenses

IRS Publication 590-B: IRA distributions

Tax planning is not just about reducing your current tax bill - it can also help optimize your lifetime tax burden. Strategies such as Roth conversions, withdrawal sequencing, and tax-loss harvesting may help reduce taxes and preserve more of your retirement savings, depending on your individual circumstances.

How Do Different Strategies Compare?

Traditional IRA / 401(k): Withdrawals are generally taxable except for after-tax basis. RMD timing depends on birth year and account type; some current-employer plans allow deferral until retirement, with exceptions. Roth IRA / Roth 401(k): Qualified withdrawals are tax-free. Neither requires lifetime RMDs for the owner; beneficiary rules differ.

Taxable brokerage: Income and realized gains may be taxable. Choose a withdrawal sequence based on your circumstances.

HSA: Withdrawals used for qualified medical expenses are tax-free. Other withdrawals may be taxable and subject to additional tax.

Frequently Asked Questions

How can I reduce my tax burden in retirement?

Roth conversions, loss realization and withdrawal decisions may affect retirement taxes. Review potential benefits, costs and eligibility with your tax advisor in light of your circumstances; no single strategy is suitable for everyone.

Should I do a Roth conversion?

Compare the conversion tax cost with potential future tax treatment, cash needs and your goals. Qualified Roth distributions are tax-free; beneficiaries have separate distribution rules. Review timing and amounts with your tax advisor.

What are the tax implications of Social Security benefits?

Social Security benefits may be partly taxable depending on income and filing status. Review the taxable portion with your tax advisor; this is different from the tax rate applied to the benefits.

What Tax Planning Actions Should You Prioritize?

Effective tax planning requires proactive strategies implemented throughout the year, not just during tax season. Consider these priority actions:

Review your withholding and estimated payments: The IRS Tax Withholding Estimator can help you determine if your current withholding is appropriate to avoid surprises at tax time.
Evaluate Roth conversion opportunities: Compare current and potential future taxes before converting. Qualified Roth IRA distributions are tax-free, but conversion income and withdrawal rules can affect the outcome. Review the amount with your tax advisor.
Harvest tax losses: Tax-loss harvesting can be an effective strategy for potentially reducing taxes on investment gains in taxable accounts.
Review retirement contributions: Pre-tax workplace contributions may reduce current taxable wages. Traditional IRA deductibility depends on eligibility, income and workplace-plan coverage; Roth contributions are not deductible.
Review charitable giving: Discuss whether bunching donations or using a donor-advised fund fits your goals. Deductibility depends on applicable limits, eligibility and whether you itemize.

Effective tax planning can help individuals and families identify opportunities to reduce their tax burden and improve after-tax outcomes.

How to Create a Tax-Efficient Retirement Plan: Step-by-Step

Implementing a tax-smart strategy requires a systematic approach:

1. Step 1: Map your income sources. Identify all current and projected retirement income streams, including Social Security, pensions, 401(k)/IRA distributions, and taxable investment income.
2. Step 2: Estimate your future tax bracket. Project your retirement income to determine which federal and state tax brackets you will likely fall into, using resources from the IRS.
3. Step 3: Evaluate Roth conversion opportunities. Compare the taxable conversion amount, available funds to pay taxes, and potential future tax treatment. Savings are not assured.
4. Step 4: Evaluate tax-loss harvesting. Review whether realizing investment losses fits your circumstances and the applicable tax rules with your tax advisor.
5. Step 5: Plan withdrawals. Compare account tax treatment, required distributions, cash needs and other circumstances.
There is no single withdrawal order that is appropriate for everyone.
6. Step 6: Review charitable options. Ask your tax advisor whether you qualify for a direct IRA-to-charity distribution and how the rules and limits apply to any required distribution.
7. Step 7: Review periodically with your advisors. Revisit your circumstances and applicable tax rules. A review may identify changes to consider but cannot assure savings or prevent every mistake.

Tax-efficient retirement planning may help reduce the taxes you pay throughout retirement, depending on your individual circumstances. Book your tax strategy session.

Loss limits, wash sales and primary sources

Capital losses are netted against capital gains under tax rules. A remaining net loss may offset up to $3,000 of other income annually ($1,500 if married filing separately); eligible unused losses carry forward. A wash-sale loss generally increases the basis of a taxable replacement investment. If your IRA or Roth IRA buys the replacement, the disallowed loss does not increase the IRA basis, so it is not recovered through that basis adjustment. Tax-loss harvesting can defer taxes rather than eliminate them. Review trading costs, investment risks and future gains before selling.

IRS Publication 550: https://www.irs.gov/publications/p550

IRS Topic 409: https://www.irs.gov/taxtopics/tc409

IRS Publication 590-A: https://www.irs.gov/publications/p590a

IRS Publication 590-B: https://www.irs.gov/publications/p590b

IRS Publication 969: https://www.irs.gov/publications/p969

IRS Social Security tax guidance: https://www.irs.gov/taxtopics/tc423

RMD rules: irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs