Retired Military Finances 201: Tax Loss Harvesting and Year-End Planning

Retirees often see volatility as a threat to hard-earned nest eggs, but with careful tax planning, it can also be an opportunity. As 2025 draws to a close, savvy tax moves—especially tax-loss harvesting—can make a measurable difference in your after-tax income, portfolio sustainability, and peace of mind.

What Is Tax-Loss Harvesting?

Tax-loss harvesting is the strategic selling of investments that have declined in value, often in taxable brokerage accounts, to realize a loss. These realized losses offset capital gains from other sales, thus reducing your taxable income for the year. If your capital losses exceed your gains, you can use up to $3,000 per year to offset ordinary income and carry unused losses forward indefinitely.

Why It Matters for Military Retirees

Many retirees rely on a combination of withdrawals, dividends, and capital gains. Large gains may push you into a higher tax bracket, potentially affecting Medicare premiums and Social Security taxation. Tax-loss harvesting can help smooth taxable income, preserve eligibility for important tax credits, and help avoid unpleasant surprises come tax time.

Harvesting Losses: Step-by-Step

Identify Investments Trading Below Purchase Price: Review holdings in your taxable accounts—these are eligible for harvesting. Retirement accounts like IRAs and 401(k)s do not directly benefit from this strategy.

Sell to Realize the Loss: Take care not to trigger a “wash sale,” which occurs if you buy the same or a substantially identical security within 30 days before or after the sale. Wash sales disqualify the loss for tax purposes.
Reinvest Prudently: Consider investing the proceeds in similar (but not identical) assets to maintain your allocation and market exposure without violating the wash-sale rule.

Beyond Harvesting: Additional Year-End Tax Moves

Harvesting losses isn't the only thing you should be thinking about as the year ends. Also consider:

Maximize Retirement Contributions: Even after retirement, continued IRA or other plan contributions (if eligible and you have earned income) can reduce this year’s taxable income.
Roth Conversions: Partially converting traditional IRA assets to a Roth can be valuable in lower-income years—locking in today’s potentially lower tax rates before future tax laws change.
Required Minimum Distributions (RMDs): Missing your RMDs by Dec. 31 can result in steep IRS penalties. Consider using Qualified Charitable Distributions (QCDs) to satisfy RMDs while also reducing taxable income if you’re charitably inclined.
Charitable Giving: Bunch charitable donations into a single year to surpass the standard deduction and maximize deductibility.

Don’t Forget Medicare and Social Security Effects

Taxable income levels influence premiums for Medicare Parts B and D, as well as the proportion of Social Security subject to taxation. Smart tax planning today can help avoid increased costs or reduced benefits in 2026.

Common Tax Pitfalls to Avoid

While there are many "gotchas" when it comes to tax loss harvesting, here are a few to keep an eye out for.

Triggering the alternative minimum tax (AMT) via excessive deductions or capital gains.
Overlooking potential state tax impacts, especially if living in or moving between states.
Forgetting to coordinate tax moves with your withdrawal strategy, possibly increasing your marginal tax rate unintentionally.

Leverage Professional Guidance

Tax loss harvesting and year-end planning must be individualized. Work with a knowledgeable advisor or CPA to ensure all moves fit your broader retirement and estate plan, comply with IRS rules, and don’t generate unexpected downside.

Military Finances are Different

While all Americans are treated equally under the code when it comes to capital gains, that isn't always the case. Active and Retired Military Members have unique carve-outs in the code and other opportunities civilians don't have. That's why we think Senior Military Officers and NCOs (active or retired) should work with a financial planner that understands those differences. If you'd like to see how we work with clients just like you, use the button below to schedule a free, initial consultation.

If you found this article useful, you might like the following blog posts:

Military Finances 101: 2026 by the Tax Numbers

Retired Military Finances 301: New "Catch-up" Rules Go into Effect in 2026

Retired Military Finances 201: Charitable Giving Tax Treatment is Changing

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