How a Pension-Funded Retired Couple Can Sell Stocks Tax-Free Until RMDs Begin, Then Face 15% Tax on Part of Each Sale

For several years, a retired couple living on pension income may be able to realize stock gains without paying federal tax on them. But once one spouse reaches a certain age, that tax-free window narrows, and part of every future sale can become taxable in a way many retirees do not expect.

A couple in retirement can sell appreciated stock each December and owe no federal tax on the gain. That strategy can work year after year until one spouse hits the age when required minimum distributions, or RMDs, begin. At that point, the mandated withdrawal from tax-deferred retirement accounts adds ordinary income and can push part of those gains into the 15% bracket. We recently examined how a Roth conversion can fit within the zero-rate band in a single year. Here, the issue is timing across multiple years.

How Capital Gains Stack on Top of Pension Income

For married couples filing jointly, long-term capital gains are taxed at 0% as long as taxable income stays at or below $98,900. The important concept is stacking: ordinary income such as pensions and IRA withdrawals fills the lower brackets first, and capital gains are added on top. Only the gains that fit under that line after ordinary income is counted receive the zero rate.

Deductions create additional room. The standard deduction for joint filers is $32,200, with an extra $1,650 for each spouse age 65 or older. There is also a senior deduction of $6,000 per person, available from 2025 through 2028. For joint filers, it begins to phase out once modified adjusted gross income, or MAGI, rises above $150,000.

Modeling the Window Before and After the First RMD

The example uses several assumptions. Both spouses are 72, they receive $60,000 in combined pension income, and they do not collect Social Security. Their traditional IRA held $800,000 at the end of the previous year, and their taxable brokerage account contains plenty of long-term gains. The same 2026 thresholds are used for both years to keep the comparison clear.

Before RMDs begin, their deductions total $47,500. That leaves enough room to sell $86,400 of gains at 0%, with MAGI at $146,400, just below the senior deduction phase-out. RMDs start at age 73 for anyone who turned 72 after December 31, 2022. Using the IRS divisor of 26.5 at that age, the first RMD is about $30,189. That reduces the zero-rate space to roughly $56,211.

If the couple still sells the full $86,400, about $30,189 of that amount is taxed at 15%, producing a tax bill of roughly $4,528. MAGI also moves beyond the senior deduction phase-out threshold, which pushes more income into the 15% bracket. In practical terms, every dollar of RMD displaces a dollar of gain that otherwise could have been tax-free.

Harvesting a gain means selling shares and immediately buying them back, which resets the cost basis, or tax basis, to the higher current price. The wash sale rule in 26 U.S.C. § 1091(a) blocks a loss deduction when the same security is repurchased within 30 days. It applies only to losses, so buying back shares right after selling at a gain is allowed.

Roth Conversions Compete for the Same Low-Income Years

These same years are also when many retirees choose Roth conversions. A conversion counts as ordinary income, so it raises the base that other income stacks on top of. The more room a conversion uses, the less is left for gains taxed at 0%. One way to judge the trade-off is to consider the bracket future RMDs would occupy. If those withdrawals would push the couple above the 22% bracket, which begins at $100,800 of taxable income for joint filers, converting earlier often makes more sense. A smaller IRA paired with larger unrealized gains tends to tilt the decision toward harvesting instead.

Income Lines That Still Matter Even When Gains Are Taxed at Zero

Even gains taxed at 0% still count as income for other purposes. The net investment income tax applies to joint filers with MAGI above $250,000. For couples receiving Social Security, up to 85% of benefits can become taxable once half the benefits plus all other income exceeds $44,000.

Medicare premiums also depend on income. The standard Part B premium is $202.90, and joint filers with income above $218,000 pay at least $284.10. Because the surcharge is based on the tax return from two years earlier, a large harvesting year can affect a later Medicare bill.

Ways to Preserve the Zero-Rate Space After RMDs Begin

Qualified charitable distributions, or QCDs, are gifts sent directly from an IRA to a charity. They are available starting at age 70 1/2, with a 2026 limit of up to $111,000 per person. They count toward the RMD but not toward taxable income, which helps preserve space in the 0% capital gains bracket. Donating appreciated shares directly to charity avoids realizing the gain. Heirs who inherit stock receive a basis equal to fair market value on the date of death, which is one reason many investors hold appreciated positions instead of selling them.

A Year-End Routine Before the First RMD

For a couple in this situation, the year-end process usually follows the same steps. Estimate pension income, subtract deductions, and determine how much room remains under the 0% capital gains threshold. Then sell and repurchase long-term winners up to that amount while keeping an eye on the $150,000 senior deduction phase-out and the $218,000 Medicare threshold. The limits change each year, and the senior deduction is scheduled to expire after 2028. Once the first RMD arrives, that available room shrinks by roughly the size of the withdrawal.