Should You Realize Capital Gains Each Year?

One of the more subtle but important planning questions we hear is this: should I realize capital gains every year, or wait until I actually need to withdraw the money?

The typical assumption is to defer capital gains for as long as possible. Let the money grow untouched and only pay tax when you finally need it. But depending on your goals, that might not be the most efficient approach, especially when it comes to managing lifetime taxes and estate value.

Optiml now allows you to model this directly in your plan. With our new Capital Gains Realization Rate setting, you can test what happens if you start realizing gains gradually over time versus deferring all of it until later. Below, we’ll walk through why this might matter, how it works, and when it could benefit your plan.

What Is Capital Gains Realization and Why Does It Matter?

If you hold investments in a non-registered account, those investments usually grow through a mix of dividends, interest, and capital appreciation.

By default, capital gains taxes are only applied when you sell and withdraw funds. That means your investment growth is tax-deferred while it stays in the account.

However, many investors rebalance or actively manage their portfolios every year. Even if you're not withdrawing money, buying and selling securities can trigger gains and lead to a tax bill. Optiml now allows you to reflect this in your plan by setting a Capital Gains Realization Rate.

Why Might You Realize Gains Before You Withdraw?

It may seem like deferring gains is always the better move, but that is not always the case. Realizing capital gains gradually can help you spread out your tax burden over time, rather than facing a large lump sum tax bill later in life.

This is similar to how a trust freeze works in estate planning. In a freeze, the current owner locks in the value of their shares, and future growth is taxed in the hands of the next generation. This strategy helps limit the tax owed later by essentially resetting the cost base and reducing the taxable portion that accumulates going forward.

Realizing gains early works in a similar way. Each time you sell and trigger a gain, your adjusted cost base is reset. From that point on, only the new growth is taxable. This can be a useful tool to manage your tax exposure and reduce the impact on your estate.

There are a few key reasons to consider this approach:

• You can smooth out your taxable income and avoid spikes in future tax years
• You may stay in a lower marginal tax bracket by spreading out the gains
• Your estate may face a smaller tax liability since gains were paid along the way
• You maintain more control over how and when you pay taxes

Of course, this strategy is not right for everyone. If you expect to be in a much lower tax bracket later, deferring might still be the better option. The benefit of Optiml is that now you can test both and make the decision based on actual outcomes.

How to Model Capital Gains Realization in Optiml

Optiml now gives you a simple way to model these scenarios:

• Go to Advanced Settings in your plan
• Look for the Capital Gains Realization Rate input
• Enter the percentage of unrealized gains you expect to realize each year (for example, 10 percent or 25 percent)

Optiml will then simulate a portion of your capital gains being realized annually, even if no withdrawals are happening. This lets you directly compare outcomes across different strategies.

See the Difference for Yourself

There is no universal answer for whether you should defer capital gains or realize them gradually. But now you do not have to guess. With this new feature in Optiml, you can test both strategies and make an informed decision based on your actual long-term results.

Whether your goal is to lower lifetime tax, increase after-tax retirement income, or grow your estate, Optiml helps you plan with clarity and confidence.

If you have questions or want help reviewing the results, just ask EVA in the tool or book a call with our team.