The 7 Most Generous Tax Rules for Retirees, Ranked

The tax code is full of things designed to hurt you. But there are also provisions specifically designed to help retirees — if you know they exist and actually use them.

Here are seven of the most powerful, ranked by how broadly applicable they are, how much they save, and whether you need to do something this year to capture them.

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#1 — The 0% Long-Term Capital Gains Bracket

Long-term capital gains are taxed at 0% if your taxable income stays below:

• $49,450 for single filers
• $98,900 for married filing jointly

In 2026, a retired couple with income in the right range can sell appreciated stock, mutual funds, or other investments and owe zero federal capital gains tax. This is one of the most underused planning opportunities in retirement.

Requires action: Yes. You need to harvest gains intentionally in low-income years.

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#2 — The Stepped-Up Cost Basis at Death

When a taxable asset is inherited, the cost basis resets to the fair market value on the date of death — wiping out a lifetime of capital gains.

If you bought a stock for $10,000 that's now worth $200,000 and you sell it, you owe tax on $190,000. If you die holding it, your heir inherits it at $200,000 and owes nothing on that gain.

Important exception: IRAs and 401(k)s do NOT get a step-up. Every dollar in those accounts is still fully taxable to your heirs.

Requires action: No automatic action needed — but knowing this should influence whether you sell appreciated assets in a taxable account during your lifetime or hold them.

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#3 — The Home Sale Exclusion (Section 121)

You can exclude up to $250,000 in gain ($500,000 for married couples) when selling your primary residence — if you've owned and lived in it for at least 2 of the last 5 years.

For many retirees downsizing to a smaller home, this exclusion can mean paying zero tax on a very large real estate gain.

Requires action: Meeting the 2-of-5-year rule. Otherwise, it's automatic.

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#4 — The Senior Bonus Deduction

For tax years 2025 through 2028, filers 65 and older get an additional $6,000 standard deduction per person. This is on top of the regular standard deduction.

For a married couple where both spouses are 65+, that's $12,000 in extra deductions every year — without itemizing.

Phases out above $75,000 single / $150,000 married AGI.

Requires action: None — it's automatic if you're 65+.

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#5 — Roth IRA Tax-Free Growth

Roth IRA withdrawals are completely tax-free for the original owner — and there are no lifetime RMDs on a Roth. Your money can grow indefinitely without a forced distribution.

For heirs, Roth accounts still have a 10-year distribution window under SECURE 2.0, but within that window, distributions remain tax-free.

Requires action: You have to get money into the Roth — through contributions or conversions. The earlier, the better.

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#6 — Qualified Charitable Distribution (QCD)

If you're 70½ or older, you can send up to $111,000 per year directly from your IRA to a qualified charity. This counts toward your RMD, never touches your taxable income, and reduces your AGI.

Lowering your AGI this way can reduce how much of your Social Security is taxed, keep you under IRMAA thresholds, and lower your overall bracket.

Requires action: Yes. You must direct the distribution from the IRA directly to the charity — not to you first.

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#7 — The HSA Triple Tax Advantage

Health Savings Accounts give you three tax benefits in one: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

The catch: New contributions end once you enroll in Medicare. But money already in the account continues to grow and can be withdrawn tax-free for medical costs indefinitely.

Requires action: Maximize contributions before Medicare enrollment. After 65, HSA funds can also be withdrawn for any purpose (treated like a traditional IRA, with income tax but no penalty).

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The Hidden Risk Behind Rule #1

Here's what most people don't know: even gains taxed at 0% raise your AGI. If you harvest too many gains in a single year, you can:

• Make more of your Social Security taxable
• Push yourself over an IRMAA Medicare threshold
• Reduce the effectiveness of other deductions

These rules don't work in isolation — they interact. The most effective retirement tax plans coordinate all of them together.

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Want to Know More? Here's the Truth.

Most retirees use one or two of these rules by accident. A coordinated retirement income plan uses all of them — intentionally, in the right sequence, in the right years.

Scott Borhauer builds year-by-year tax models that show exactly which strategies apply to your situation and how much they can save you over a 20-year retirement.

Not individualized tax or financial advice. Consult a qualified tax professional for your specific situation.