AAPL current trading around $225/share means the guy owns around 11,100 shares of AAPL (at least). I’m guessing he owns assets other than just shares of AAPL. Nobody just buys 100 shares of AAPL and then just stops, do they? (I arrived at 100 when I factor in AAPL stock splits in the last 25 years )
Nice problem to have. Didn’t this guy ever hear of the idiom on “Death and Taxes”?
Given he ignored the issue for so long - my advice would be taxes, taxes, taxes - now figure out a gradual AAPL slicing strategy
Definitely a first world problem. That said, if he’s charitably inclined, he could start a DAF (Donor Advised Fund) with a couple thousand of those shares. That will give him a nice charitable deduction without even having to declare any of the income from the donated shares on his tax return. Then, depending on his needs for spending, he could use the AAPL as most/all of his income a year, and still not have to pay a significant amount in taxes. He could sell 500 shares ($112,500), have $12.5k withheld for taxes, and be able to spend $100k for the year. Even without a charitable deduction, for a single person with little/no other income, in 2025, his tax bill would be:
0% for first $15,000 = $0 in taxes - standard deduction
0% LTCG rate for next $48,350 - 0% in taxes - 0% capital gains bracket
15% LTCG for remaining $49,150 = $7,373 in taxes - 15% capital gains bracket
So he’ll pay $7,373 on $112,500 in income, or 6.55%
If he wants to get more of it sold, or he needs more income, he could sell up to $200k (minus any other income) without triggering NIIT. Since he presumably has some basis, that’s probably around 900 shares.
If he’s disciplined about it, he can trim down his AAPL position in less than 10 years.
Should also note - AAPL pays a dividend - $1 annual - makes the numbers easy. So with 11000 AAPL shares - an additional $11,000 in income (even assuming no other stocks or assets generating income). Obviously, the income stream would go down as he trimmed the AAPL stake
Not necessarily. The dividend has been increasing by about 5% a year recently. So if about $100k of shares are sold each year, say 500 shares or so each year, then next year, the remaining 10,500 shares may have a dividend of $1.05, or $11,025 for the year. And the year after, the remaining 10,000 shares may have a dividend of $1.10, or $11,000 for the year. Etc.
$100k per year? The headline from the article expresses something quite different. What to do in year six is a mystery, though.
I’m 55 with $2.5 million in Apple stock that I bought 30 years ago and now it’s all capital gains - can I use these funds for the first 5 years of my retirement?
And does he also have estate tax liability. My situation with both Apple and Nvidia.
Charitable Remainder Trust is one way to avoid capital gains. Still working out details but CRAT seems best. Can be set to pay to heirs as beneficiaries avoiding gift tax by keeping payments below annual gift tax exemption ($19k per person in 2025). Reduces estate size without reducing lifetime estate tax exemption and without paying capital gains.
Can also pay benefits to self or spouse for life. And remainder gives a tax deduction and gift to your choice of charities.
When I read the article, I understood it differently. I understood that he wants to draw FROM that investment to fund his first 5 years of retirement. Presumably he has other income, maybe a pension, maybe social security (at age 62, etc) that will begin at the end of those 5 years. I did not understand that he wants to sell ALL of it.
Also, the entire article is kind of incoherent and appears to be written by a rank amateur who didn’t even do any of the basic research required to write such an article. For example, in their first main point, what the heck does IRMAA have to do with someone who is funding early retirement from age 55 to age 60? The earliest IRMAA needs to be considered is at age 63 (I think, due to the two year look-back on MAGI). Another example is point 3. Since they describe the gains on this stock as “capital gains”, it means the stock is in a taxable account. So how could early IRA withdrawals or Roth conversions help with reducing taxes on this large capital gain? In fact, it’s just the opposite, using IRA withdrawals or Roth conversions only INCREASES your taxable income and can only cost more in taxes in this particular case. How could it possibly “offset[ting] taxes from his Apple stocks”?
I’m not the guy in the article, but I am basically this guy. Involuntarily retired at 53 with about that amount in AAPL, purchased in the early 2000s. I just put a third of it into an exchange fund (kinda like a 1031 exchange in real estate), which spreads out the risk. It also ties up your money for 7 years, but I will still have to deal with cap gains then. If anyone has any advice for the other 2/3, would love to hear it!
Presumably this means you’re not looking for another job?
So you have about 7000 shares left, and you will realize a large amount of income, along with a large capital gain tax bill in 7 years, when you are 60?
Since most of your issue has to do with taxes, I would suggest finding a good tax advisor to help you scope out the details of a plan. But here’s a basic outline:
If you’re charitably minded, you could start a DAF (Donor Advised Fund) with some of the shares, and continue to make contributions of some shares each year, which will get you a charitable deduction without having to declare income from the capital gains.
Then, you have almost 9 years before you can even claim SS, and almost 17 years before you have to claim it, and about 6 years before you can touch your retirement accounts without penalties or taking SEPP (which you probably don’t need to do) and almost 22 years before you have to take RMDs. How much do you need a year now, and how were you planning on getting that money?
For the next 6 years, you could sell enough a year to keep yourself below the NIIT threshold ($200k for Single/HOH, $250k for MFJ, $125k for MFS) after accounting for your other income, like the dividends and if you want to do some Roth conversions. Year 7 will be an anomaly because of the income fund, then starting in year 8 go back to the same strategy. Starting the year you turn 62, if you’re a Single filer, you will probably want to keep the IRMAA threshold in mind, rather than the NIIT threshold. If you’re MFJ, the IRMAA threshold will probably be over the NIIT threshold by that time, but you should confirm that.
I would suggest delaying SS as long as possible. For your retirement accounts, that will be a discussion with your tax advisor on how to do conversions, what age to start taking withdrawals, etc.
One other option - if you’re currently single, you could get married to someone who has little/no other income to decrease your tax burden.
Edited to add: I would also point out that you are probably not going to be able to get subsidies on ACA insurance (as long as it lasts, anyway), if that’s the health insurance that you are going to be using.
Or you could get married to someone that has low income, but receives (at least in part) decent family medical coverage from their employer. That alone could be worth $3000+ a month.
In general, if you’re sitting on $2M+ of capital gains, one way or another you will eventually pay taxes on those gains (except for famous step up of basis upon death, but then someone else owns it, not you anymore). Even if you do it over 20 years, it’ll be $100k a year. Sure, some can be sheltered by donating here and there, but the bulk is going to be taxed. And if the equity continues to grow over the 20 years you are taking $100k a year in gains, you will have even more gains to deal with at that point.
That’s why I put a substantial portion into an exchange fund. In 7 years, I will walk away with a diverse basket of stocks that aren’t Apple. And in the meantime, the goal of the fund is to match the nasdaq, so reducing risk (will still have to pay cap gains someday tho).
I’ve read a little (very little) about exchange funds and my impression is that the disadvantages outweigh the advantages in almost all cases. The fees alone eat up a goodly portion of the taxes being avoided. At 1.5%, the first 7 years (that’s the minimum period for participating in an exchange fund) will cost 10.5% in fees. Meanwhile, the capital gains taxes would have been, at most, 23.8%, and sometimes a little lower if you time the sales well.
How does cap gains get to 34%? 15% for most if us or 20% for high incomes plus 3.8% Obama tax over $200k single or $250k married. Plus state and local income tax.
Which fund is it? I’d seriously consider one that has only a 5 basis point expense ratio and no additional fees! That’s almost Vanguard level of expense. Excellent.
(I’m in a similar boat, own one stock that its value is almost entirely capital gains, and it comprises more than 50% of the total.)
Hmm, if you’re sitting on a few million of pending capital gains, it might be worth moving out of a state that has a 10% capital gains tax. At least for a few years.
Which states (localities) have 10% capital gains taxes? NYC? LA?
Also, it is very likely that of the entire capital gain, some portions will be taxed at the lower rates. Probably some of it at 15%, some of it at 18.8%, and some of it at 23.8%, plus state and local as mentioned earlier.
I know there are some, but I’ve lived in states without income taxes for over 20 years and haven’t really kept up with details on state taxes. Here’s an article on NerdWallet that has some information Income Tax by State: 2024 Rates and Brackets - NerdWallet
Probably. How much is taxed at lower rates will depend on other income, deductions and filing status. Which is why donating highly appreciated stock to charity (including a DAF) can be useful, because you don’t have to recognize the capital gains income from the appreciation of the stock, but the deduction is based on the value of the stock at the time of the donation.
But even without that, the capital gains 0% tax bracket for 2025 will be $48,350 for Singles and $96,700 for MFJ. Add in the standard deduction and Singles can have up to $63,350 and MFJ up to $126,700 in LTCG without paying any Federal income taxes.
Adding in some LTCG at 15% but staying under the NIIT limit can still result in an overall Federal tax rate about 10% or less for up to $215k in income (Single) or $280k in income (MFJ).
