Keep What You Earn: Minimizing Capital Gains Taxes with Smart Strategies

May 24, 2024

Building wealth is fantastic, but with great investment success comes the not-so-great reality of taxes — specifically, capital gains taxes. If you’re not careful, these taxes can eat into the profits you’ve worked so hard to build.


Effective tax planning strategies are essential to minimize this burden. With the right strategies in place, you can maximize your financial growth and preserve more of your hard-earned wealth. 


Whether you're looking to optimize the timing of asset sales, reduce tax liabilities through strategic reinvestments, or explore options like the 1031 exchange for real estate, understanding and implementing capital gains tax planning can substantially impact your financial health and future security.


What Are Capital Gains Taxes?


Capital gains taxes apply when you sell an investment for more than what you originally paid, plus certain expenses. The profit is considered a capital gain, which can be taxed at different rates depending on a few factors:


  • Short-term vs. long-term: Gains on investments held for a year or less are taxed as ordinary income at rates up to 37%. For long-term capital gains on assets held over a year, you'll pay preferential rates of 0%, 15%, or 20% based on your taxable income.


  • Type of asset: Capital gains on most assets are subject to the above rates, but some types of gains, like collectibles or certain real estate, have different rates applied.


For high-net-worth individuals, the stakes are high because these gains can be significant, and if you don't plan appropriately, so too can the resulting tax bill.


Capital Gains Tax Planning Strategies


Regarding capital gains tax planning, the most effective approach often involves a combination of strategies. By leveraging multiple techniques, you can create a comprehensive plan that minimizes your tax burden and helps you achieve your long-term financial goals.


Hold Investments for the Long Term

As mentioned, the easiest way to lower your capital gains tax bill is to hold onto your investments for more than a year to qualify for the lower long-term capital gains tax rates. 


Timing Your Sales

One fundamental approach to managing capital gains is strategically planning the timing of your asset sales. If your income will be notably lower in a future year, it may be beneficial to defer selling assets until that period to take advantage of a lower tax rate. This requires careful prediction and planning around your income streams and financial events.


Implement Tax-Loss Harvesting 

Tax-loss harvesting is a strategy involving selling off investments underperforming assets and realizing a loss, which can then be used to offset gains from other investments. This is particularly useful in a diversified investment portfolio where the performance of assets can vary widely.

By carefully timing the sale of these "losing" investments, you can use the losses to reduce your overall tax liability. This process requires precise coordination and timing, so it's best to work with a financial advisor to execute it effectively.


Utilize Tax-Advantaged Accounts 

Placing your investments with higher growth potential in tax-advantaged accounts, such as IRAs or 401(k)s, can help you defer or even eliminate capital gains taxes. These accounts allow your investments to grow tax-deferred; in the case of Roth accounts, you can even withdraw the funds tax-free in retirement.


Investing in Opportunity Zones 

Qualified Opportunity Zones are designated areas within the United States that offer significant tax benefits for investors. Investing in businesses or real estate within these zones can defer and potentially reduce your capital gains taxes. This strategy can be particularly beneficial for those with substantial capital gains to reinvest.


The Power of the 1031 Exchange


The 1031 exchange, also known as a like-kind exchange, is a powerful tool for real estate investors looking to defer capital gains taxes. This strategy allows you to sell an investment property and reinvest the proceeds into a new, similar property without immediately incurring capital gains taxes. By deferring the taxes, you can preserve more of your investment capital for future growth.

Here's how it works:


  1. Identify the replacement property: Within 45 days of selling your original investment property, you must identify one or more replacement properties you intend to purchase.
  2. Complete the purchase: You have 180 days from the sale of the original property to complete the purchase of the replacement property or properties.
  3. Defer capital gains taxes: By following these rules, you can defer the capital gains taxes on the sale of the original property, allowing your investment capital to continue growing without the drag of a tax bill.


1031 Exchange Strategies


  1. Choosing 'like-kind' properties wisely: The definition of 'like-kind' in a 1031 exchange is broader than you might think. It essentially allows for exchanging one type of real estate for another — say, an apartment building for an office block — as long as both are used for business or investment purposes.
  2. Timing is everything: The 1031 exchange is not a leisurely process; strict timelines bind it. Once your property is sold, you have 45 days to identify potential replacement properties and a total of 180 days to complete the acquisition of one or more of these properties.
  3. Leveraging a qualified intermediary (QI): The IRS mandates that a QI handle the funds involved in the transaction. The QI acts as a neutral third party to ensure the process is carried out correctly and that the funds are never in the investor's possession, which could jeopardize the transaction's tax-deferred status.


The Benefits of a 1031 Exchange


So, why go through the hassle of a 1031 exchange? Here are some compelling reasons:


  • Tax deferral: This is the big one. By reinvesting your proceeds, you push the capital gains tax bill down the road. This frees up more capital to invest in a new property, potentially boosting your overall return.
  • Grow your portfolio: By strategically utilizing 1031 exchanges, you can trade up for higher-value properties over time, building a more robust real estate portfolio with potentially greater income streams.
  • Flexibility: You're not limited to just one new property. The IRS allows you to identify up to three "like-kind" properties as potential replacements, giving you some flexibility in your investment choices.


It's important to note that the 1031 exchange rules are complex. It's critical to work with a qualified tax professional or financial advisor to ensure you're following the proper procedures and maximizing the benefits of this strategy.


1031 Exchange and Estate Planning


A 1031 exchange isn't just a technique for deferring capital gains taxes when selling an investment property. They can also work as an estate planning strategy to minimize taxes for your heirs. If the investment property gets passed down after your death, your heirs will receive a step-up in cost basis to the home's current fair market value.

That means if they turn around and sell it soon after, there would be little or no capital gains taxes to pay based on your original, much lower cost basis from decades ago. Using 1031 exchanges strategically during your lifetime can allow you to hang onto and keep building up appreciated properties. 


Five Pine Wealth Is In Your Corner



Capital gains tax planning is a crucial aspect of investment management. Your goal is to grow wealth and protect it from eroding through taxes. Implementing the right strategies can minimize your tax burden and help you keep more of your hard-earned investment profits. 


The key to effective capital gains tax planning is to work closely with a qualified financial advisor and tax professional who can provide personalized guidance and help you navigate the complexities of the tax code.


At Five Pine Wealth Management, we have the experience to help you develop a tailored plan to optimize your overall capital gains strategy. Call us at 877.333.1015 or email to schedule a meeting to start taking the appropriate steps to protect your wealth.

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You've Maxed Your 401(k). Now What? A Strategic Guide for High Earners

January 26, 2026
Key Takeaways High earners maxing out 401(k)s at $24,500 are only saving about 8% of a $300,000 income in their primary retirement account. The mega backdoor Roth strategy can increase total 401(k) contributions to $72,000 annually with tax-free growth. A comprehensive approach can create nearly $3 million in additional retirement wealth over 20 years. It's 2026. You're checking all the boxes. You're earning upwards of $300,000 annually, and you're maxing out your 401(k) every year. You've reached the $24,500 contribution limit and feel confident about securing your financial future. Then you realize $24,500 represents less than 8% of your income. Over 20 years, this gap adds up to millions in lost opportunity. Thankfully, you're not stuck with the basic 401(k) playbook. There are sophisticated strategies beyond your contribution limit. 5 Strategic Moves for High Earners with Maxed-Out 401(k)s Here are five sophisticated strategies that can help you build wealth beyond your basic 401(k) contributions. All projections assume a 7% average annual return and are estimates for illustrative purposes. 1. Mega Backdoor Roth Contributions If your employer's 401(k) plan allows after-tax contributions, this could be your biggest opportunity. With employee contributions, employer match, and after-tax contributions, the combined 401(k) limit for 2026 is $72,000 ($80,000 if you're 50 or older). The mega backdoor Roth works because you immediately convert those after-tax contributions into a Roth account, where they grow tax-free forever. The catch: Not all employers offer this option. You need a plan that permits after-tax contributions and in-service Roth conversions. The impact: The available space for after-tax contributions depends on your employer match. With a typical employer match of 3-6% (roughly $10,000-$21,000 on a $350,000 salary), you could contribute approximately $26,500-$37,000 annually. At 7% average returns over 20 years, this creates approximately $1.1-$1.5 million in additional tax-free retirement savings. 2. Donor-Advised Funds for Charitable Giving If you're charitably inclined, donor-advised funds (DAFs) offer a way to bunch several years of charitable contributions into one tax year, maximizing your itemized deductions while still spreading your giving over time. You get an immediate tax deduction for the full contribution, but you can recommend grants to charities over many years. The funds grow tax-free in the meantime. The catch: Once you contribute to a DAF, the money is irrevocably committed to charity. You can't get it back for personal use. The impact: Contributing $50,000 to a DAF in a high-income year (versus giving $10,000 annually) can create immediate federal tax savings of $15,000-$18,500 while still allowing you to support the same charities over five years. 3. Taxable Brokerage Accounts with Tax-Loss Harvesting Once you've maximized tax-advantaged accounts, strategic taxable investing becomes your next move. The key is working with a financial advisor who implements systematic tax-loss harvesting throughout the year. Tax-loss harvesting involves selling investments at a loss to offset capital gains elsewhere. Done strategically, this can save thousands in taxes annually. The catch: Long-term capital gain rates (0%, 15%, or 20%) are lower than ordinary income tax rates, but you're still paying taxes on gains. It's less tax-efficient than retirement accounts, but far better than ignoring tax optimization. The impact: For high earners in the 35-37% ordinary income brackets, the difference between long-term capital gains (20%) and ordinary rates is significant. Effective tax-loss harvesting on $50,000 in annual gains over 20 years could save $150,000+ in taxes. 4. Health Savings Account (HSA) Triple Tax Advantage HSAs offer a unique triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. With 2026 contribution limits of $4,400 for individuals and $8,750 for families, this adds another powerful layer to your strategy. You can invest HSA funds just like an IRA and let them grow for decades. After age 65, you can withdraw the funds for any purpose, medical or otherwise. The catch: You must have a high-deductible health plan to qualify for an HSA. After age 65, non-medical withdrawals are taxed as ordinary income (like traditional IRA distributions), but you still benefit from the upfront deduction and decades of tax-free growth. The impact: Contributing the family maximum ($8,750) annually for 20 years at a 7% average annual return creates approximately $355,000-$360,000 in tax-advantaged savings. 5. Backdoor Roth IRA Contributions Not to be confused with mega backdoor Roth contributions! Even if your income exceeds the Roth IRA contribution limits, you can still fund a Roth through the backdoor method: make a non-deductible contribution to a traditional IRA, then immediately convert it to a Roth IRA. The catch: If you have existing traditional IRA balances, the pro-rata rule complicates things. You may want to consider rolling those funds into your 401(k) first if your plan allows. The impact: Contributing $7,000 annually through the backdoor Roth for 20 years at 7% average annual return creates approximately $285,000-$290,000 in tax-free retirement savings. What Compounding These Strategies Looks Like Over 20 Years Let’s look at approximate outcomes based on a 7% average annual return. 401(k) Only: Annual contribution: $24,500 Total after 20 years: ~$1M 401(k) + Mega Backdoor Roth: Annual contribution: $72,000 Total after 20 years: ~$3M Note: Mega backdoor Roth space varies based on your employer's match. These calculations assume you're maximizing the total annual limit. Comprehensive Approach (under age 50): Mega Backdoor Roth: ~$3.0M HSA: ~$350K-$360K Backdoor Roth IRA: ~$285K-$290K Strategic taxable investing with tax-loss harvesting Total retirement savings: ~$3.6M+, plus taxable investments Comprehensive Approach (ages 50-59): With higher contribution limits and catch-up contributions, total retirement savings can reach ~$4M+ over 20 years. Comprehensive Approach (ages 60–63 with enhanced catch-up contributions) Higher contribution limits during peak earning years allow for meaningful acceleration of retirement savings. The exact impact depends on timing, contribution duration, and existing balances. The Bottom Line The difference between stopping at your basic 401(k) and implementing a comprehensive strategy can approach $3 million or more in additional retirement wealth over time. Why Strategic Coordination Matters These aren't either/or decisions. The most effective approach coordinates multiple strategies while ensuring everything works together. At Five Pine Wealth Management , we help high-earning clients build comprehensive plans that go beyond the 401(k). We coordinate your employer benefits, tax strategies, and investment accounts to create a cohesive approach that maximizes your wealth-building potential. This requires working across several areas: Analyzing your employer's 401(k) plan for mega backdoor Roth opportunities Implementing systematic tax-loss harvesting in taxable accounts Coordinating Roth conversions and backdoor contributions Optimizing your HSA as a long-term retirement vehicle Ensuring charitable giving strategies align with your tax situation Maximizing catch-up contributions when you reach milestone ages As fiduciary advisors, we're legally obligated to act in your best interest. That means we're focused on strategies that serve your goals, not products that generate commissions. Ready to see what's possible beyond your 401(k)? Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation about your specific situation. Frequently Asked Questions (FAQs) Q: Does my employer's 401(k) plan automatically allow mega backdoor Roth contributions? A: No. You need a plan that permits after-tax contributions and in-service conversions to Roth. Check with your HR department. Q: How do I prioritize which investment strategies to use? A: Generally, maximize employer match first (it's free money), then fully fund your 401(k), explore Mega Backdoor Roth if available, max out your HSA, consider backdoor Roth IRA contributions, and then move to taxable accounts with tax-loss harvesting. We can help determine the right sequence for your circumstances.

What's the Best Asset Allocation for Someone 10 Years Away from Retirement?

December 22, 2025
Key Takeaways Your guaranteed income sources (pensions, Social Security) matter more than your age when deciding allocation. Retiring at 65 doesn't mean your timeline ends. You likely have 20-30 years of investing ahead. Think in time buckets: near-term stability, mid-term balance, long-term growth. You're 55 years old with over a million dollars saved for retirement. Your 401(k) statements arrive each month, and you find yourself questioning whether your current allocation still makes sense. Should you be moving everything to bonds? Keeping it all in stocks? Something in between? There's no single "correct" asset allocation for everyone in this position. What works for you depends on factors unique to your situation: your retirement income sources, spending needs, and risk tolerance. Let's look at what matters most as you approach this major life transition. Why Asset Allocation Changes as Retirement Approaches When you’re 30 or 40, your investment timeline stretches decades into the future. When you’re 55 and looking to retire at 65, that equation changes because you’re no longer just building wealth: you’re preparing to start spending it. You need enough growth to keep pace with inflation and fund decades of retirement, but you also need stability to avoid the need to sell investments during market downturns. At this point, asset allocation 10 years before retirement is more nuanced than a simple “more conservative” approach. Understanding Your Actual Time Horizon Hitting retirement age doesn't make your investment timeline shrink to zero. If you retire at 65 and live to 90, that's a 25-year investment horizon. Think about your money in buckets based on when you'll need it: Time Horizon Investment Approach Example Needs Short-Term (Years 1-5 of Retirement) Stable & accessible funds Monthly living expenses, healthcare costs, and early travel plans Medium-Term (Years 6-15) Moderate risk; balanced growth Home repairs, care and income replacement, and helping grandchildren with college Long-Term (Years 16+) Growth-oriented with a Long-term care expenses, decades-long timeline legacy planning, and extended longevity needs This bucket approach helps you think beyond simple stock-versus-bond percentages. Asset Allocation 10 Years Before Retirement: Starting Points While there's no one-size-fits-all answer, here are some reasonable starting frameworks: Conservative Approach (60% stocks / 40% bonds) : Makes sense if you have minimal guaranteed income or plan to begin drawing heavily from your portfolio upon retirement. Moderate Approach (70% stocks / 30% bonds) : Works well for those with some guaranteed income sources, moderate risk tolerance, and a flexible withdrawal strategy. Growth-Oriented Approach (80% stocks / 20% bonds) : Can be appropriate if you have substantial guaranteed income covering basic expenses and the flexibility to reduce spending temporarily as needed. Remember, these are starting points for discussion, not recommendations. 3 Steps to Evaluate Your Current Allocation Ready to see if your current allocation still makes sense? Here's how to start: Step 1: Calculate your current stock/bond split. Pull your recent statements and add up everything in stocks (including mutual funds and ETFs) versus bonds. Divide each by your total portfolio to get percentages. Step 2: List your guaranteed retirement income. Write down income sources that aren't portfolio-dependent: Social Security (estimate at ssa.gov), pensions, annuities, rental income, or planned part-time work. Total the monthly amount. Step 3: Calculate your coverage gap. Estimate monthly retirement expenses, then subtract your guaranteed income. If guaranteed income covers 70-80%+ of expenses, you can be more growth-oriented. Under 50% coverage means you'll need a more balanced approach. When to Adjust Your Allocation Here are specific triggers that signal it's time to review and potentially adjust: Your allocation has drifted more than 5% from target. If you started at 70/30 stocks to bonds and market movements have pushed you to 77/23, it's time to rebalance back to your target. Your retirement timeline changes significantly. Planning to retire at 60 instead of 65? That's a trigger. Every two years of timeline shift warrants a fresh look at your allocation. Major health changes occur. A serious diagnosis that changes your life expectancy or healthcare costs should prompt an allocation review. You gain or lose a guaranteed income source. Inheriting a pension through remarriage, losing expected Social Security benefits through divorce, or discovering your pension is underfunded. Market volatility affects your sleep. If you're checking your portfolio daily and feeling genuine anxiety about normal market movements, your allocation might be too aggressive for your comfort, and that's a valid reason to adjust. Beyond Stocks and Bonds Modern retirement planning involves more than just deciding your stock-to-bond ratio. Consider international diversification (20-30% of your stock allocation), real estate exposure through REITs, cash reserves covering 1-2 years of spending, and income-producing investments such as dividend-paying stocks. The Biggest Mistake: Becoming Too Conservative Too Soon Moving everything to bonds at 55 might feel safer, but it creates two significant problems. First, you're almost guaranteeing that inflation will outpace your returns over a 30-year retirement. Second, you're missing a decade of potential growth during your peak earning and saving years. The difference between 60% and 80% stock allocation over 10 years can mean hundreds of thousands of dollars in portfolio value. Being too conservative can be just as risky as being too aggressive, just in different ways. Questions to Ask Yourself As you think about your asset allocation for the next 10 years: What percentage of my retirement spending will be covered by Social Security, pensions, or other guaranteed income? How flexible is my retirement budget? Could I reduce spending by 10-20% during a market downturn? What's my emotional reaction to seeing my portfolio drop 20% or more? Do I plan to leave money to heirs, or is my goal to spend most of it during retirement? Your honest answers to these questions matter more than your age or any generic allocation rule. Work With Professionals Who Understand Your Complete Picture At Five Pine Wealth Management, we help clients work through these decisions by looking at their complete financial picture. We stress-test different allocation strategies against various market scenarios, coordinate withdrawal strategies with tax planning, and help clients understand the trade-offs between different approaches. If you're within 10 years of retirement and wondering whether your current allocation still makes sense, let's talk. Email us at info@fivepinewealth.com or call 877.333.1015 to schedule a conversation. Frequently Asked Questions (FAQs) Q: What is the rule of thumb for asset allocation by age? A: Traditional rules like "subtract your age from 100" are oversimplified. Your allocation should be based on your guaranteed income sources, spending flexibility, and risk tolerance; not just your age. Q: Should I move my 401(k) to bonds before retirement? A: Not entirely. You still need growth to outpace inflation. Gradually shift toward a balanced allocation (60-80% stocks, depending on your situation) and keep 1-2 years of expenses in stable investments. Q: What's the difference between stocks and bonds in a retirement portfolio?  A: Stocks provide growth potential to keep pace with inflation but come with volatility. Bonds offer stability and income but typically don't grow as much.