Most retirees don’t realize it, but one of the most powerful retirement tax strategies comes from something everyone hates: investment losses.
And in a volatile 2025 market, those losses may be worth far more than you think.
Because used correctly, they can slash your tax bill.
The Hidden Power of Tax-Loss Harvesting
Tax-loss harvesting lets you turn a losing investment into a winning strategy. If a stock or fund in your taxable account is worth less than what you paid for it, you can sell it, “harvest” the loss, and use it to offset gains from other investments.
Even better, the IRS lets you use up to $3,000 of leftover losses each year to reduce ordinary income — a rare advantage in retirement.
Many retirees assume this strategy is only for high earners or day traders, but that’s not true. Anyone with a taxable investment account can benefit, especially in turbulent years like 2025 where portfolios may have unrealized losses sitting untouched.
“Losses aren’t failures — they’re opportunities,” a tax strategist recently said. “Retirees who harvest losses consistently can save thousands over time.”
What makes the strategy even more powerful is a rule most people don’t know.
How to Keep Your Strategy — and Capture the Savings
The biggest misconception about tax-loss harvesting is that selling means abandoning your investment plan. But you don’t have to give up the asset you believe in.
After selling at a loss, you can immediately buy a similar — but not identical — investment, keeping your portfolio allocation intact while still capturing the tax benefit.
This avoids the IRS “wash-sale rule,” which disallows the loss if you buy the exact same security within 30 days.
For example: Sell a losing S&P 500 index fund → Buy a different S&P 500 ETF. Sell a lagging tech fund → Replace it with a similar technology ETF.
Your strategy stays the same, but the tax savings are locked in.
And the benefits can add up fast. Retirees who harvest losses each year often build a “bank” of losses they can use in future years to offset gains, giving them more control over taxable income as they manage withdrawals.
This is especially useful for those coordinating Social Security, RMDs, capital gains, and portfolio rebalancing.
But there’s one important limitation:
Tax-loss harvesting only works in taxable accounts. It does not apply to 401(k)s, IRAs, or Roth IRAs.
That makes it a perfect strategy for retirees who have multiple account types and want to minimize taxes without changing their core investment mix.
Financial planners recommend checking your portfolio for unrealized losses several times per year rather than waiting until December. Harvesting throughout the year can smooth out taxes, prevent surprises, and ensure you don’t miss opportunities during volatile markets.
In retirement, keeping more of what you earn is just as important as investment growth. And tax-loss harvesting is one of the simplest, most overlooked ways to do it.
If you haven’t checked your taxable accounts lately, this may be the year that could save you thousands.