Retirement Archives | The Financial Geek

As the Financial Geek, I get a ton of questions about capital gains, taxes, and retirement. There is a common misconception among people that once you hit the magical age of 65, most of your taxes disappear. While this would be nice, unfortunately, it is just not the case. So in this article, I’m going to dive a bit deeper into taxes and answer the question: do you pay capital gains taxes after age 65? The answer to this question is an emphatic yes! Capital gains taxes will be around for our entire lives, unfortunately. These taxes have nothing to do with our age or employment status. Instead, capital gains taxes are calculated on the amount of profit we make on investments. Obviously, we can and should be invested well into our retirement years! This means that capital gains taxes will remain with us as long as we are invested. Capital gains taxes can be calculated from all types of assets including stocks, ETFs, and even real estate. If you are an active investor even after the age of 65, there is a high likelihood you are already dealing with capital gains taxes come income tax season. Let’s take a look at why you have to keep paying capital gains taxes even after the ripe age of 65. Do You Pay Capital Gains Taxes After Age 65? You bet you do! As you probably already know, capital gains taxes are calculated on the profits you make from investment assets. The gains you are taxed on are the difference between what you bought the asset for and what you sold it for. If you sold it for a profit, then you would pay capital gains taxes. If it was a loss, you would see a capital loss deduction from your income tax. So you can see why even after retirement or the age of 65, you would continue to pay capital gains taxes. Many people I talk to get this confused with things like retirement contributions. While contributions to a tax-deferred account like a ROTH IRA do not immediately tax you on capital gains, you do still have to pay those taxes when you withdraw them later in life. For My Canadian Readers: Do you Pay Taxes on your RRSP After Age 65? Do I Pay Capital Gains if I am Retired? For many people, 65 is a magical age to retire at. It has long been the age that people strive to work until to get a full pension or other benefits. Of course, these days plenty of us are looking at early retirement too. This is one reason why we continue to pay capital gains even in retirement: there is no defined age for retirement. The benefit of deferring your capital gains taxes until retirement is that for most people, they will be in a lower tax bracket. This means you can absorb a lot more capital gains and not have to worry about paying more income tax. Financial Geek Related Article: What's a Good (Very Comfortable) Retirement Income? In the United States, there is a difference between short-term and long-term capital gains. If you are investing for the long term and plan to cash out some of these investments in retirement, then your capital gains taxes will be considerably lower. For most people, the long-term capital gains tax rate is about 15%. This is minimal compared to the short-term capital gains rate of up to 37% as of 2023! Do I Have to Pay Capital Gains Taxes if I am Over 55? What if we lowered the age threshold to 55 years of age? Does that make any difference to capital gains taxes? For investment assets like stocks or ETFs, it does not make any difference. At one point there was a law in the United States that excluded you from reporting capital gains taxes on the sale of your house after the age of 55. Unfortunately, for those looking to cash in on this the law is no longer in effect. Today, there are some exemptions for capital gains on the sale of your real estate. None of these are impacted by your age though. This is to provide citizens of any age to benefit from the sale of their homes. Is Anyone Exempt from Capital Gains Tax? When it comes to capital gains on investments, nobody is exempt. You can shelter yourself by investing for the long term and thus lowering your tax rate. This wil not exempt you from paying capital gains taxes altogether though, even if they are in a retirement account. There are some exceptions that are in place to help people keep their taxes under control. When you do sell your house in the United States, you can be exempt from paying capital gains taxes on the first $250,000 of the vaalue of your property. If you are married, you can enjoy up to $500,000 as a couple. Remember, capital gains taxes are only calculated by the difference between what you paid and what you sold at. If your house did not dramatically rise in value, then your capital gains taxes might be minimal. This is the only example right now in the United States where you might be exempt from paying some capital gains taxes. As I mentioned, it has nothing to do with your age or employment status. The Bottom Line: Do I Pay Capital Gains Taxes at Age 65? Yes! As I have outlined, capital gains taxes are something everyone has to deal with regardless of age. Even if you are retired, if you make profit on an investment asset, you will be taxed. This can be on anything from trading real estate to investing in bonds. You can avoid some of these taxes by investing in retirement accounts like a ROTH IRA. You will not be taxed on withdrawals until after you are retired. I hope this helped clear up some confusion about capital gains taxes! Geek, out!