Updated

Updated · USA TODAY · Jul 22

Wealthfront Launches Custodial Accounts to Harvest Up to $1,350 in Tax-Free Gains

Updated

Updated · USA TODAY · Jul 22

Wealthfront Launches Custodial Accounts to Harvest Up to $1,350 in Tax-Free Gains

Q: Can harvesting 'tax-free' gains today lead to surprise increases in your future Medicare premiums?

Yes. Harvesting gains that are taxed at 0% federally can still raise future Medicare premiums because Medicare uses income, not just tax owed, to set surcharges. The key issue is IRMAA, the income-related surcharge on Medicare Part B and Part D. IRMAA is based on your modified adjusted gross income from two years earlier. So gains realized in 2026 can affect Medicare premiums in 2028. Long-term capital gains harvested in a 0% federal bracket still increase adjusted gross income and therefore can push someone over an IRMAA threshold. That is why advisers stress modeling the full tax picture, not just the capital gains rate. In the example cited in the news story, the strategy can work well when retirees keep taxable income low enough to stay below both the 0% capital gains ceiling and Medicare surcharge thresholds. But if harvested gains are too large, even by a small amount, they can trigger a higher IRMAA bracket because the system works like a cliff. State taxes can also still apply, and high-income investors may face the 3.8% net investment income tax, though that generally affects people well above the 0% capital gains range. The practical takeaway is that tax-gain harvesting can be valuable, especially in low-income years before Social Security or required minimum distributions begin, but it should be coordinated with Medicare planning. A gain that is “tax-free” for federal capital gains purposes is not necessarily “Medicare-free.”

3 articles · Updated · USA TODAY · Jul 22

Wealthfront’s new custodial accounts automatically sell appreciated investments each year, realize gains while a child is in a low or 0% tax bracket, and buy replacement ETFs to keep the portfolio’s target risk and return.
The strategy caps annual realized growth at $1,350 so no federal tax is due and no return is required, raising the child’s cost basis and potentially reducing taxes when the assets are sold later.
Wealthfront is pitching tax gain harvesting as the lesser-known counterpart to tax-loss harvesting, taking advantage of years when taxable income is low enough for long-term capital gains to face a 0% federal rate.
Advisers say the approach can work for retirees and children but warn about limits: gains above $2,700 can trigger the kiddie tax at parents’ rates, and many states still tax capital gains or impose filing requirements.