How Retirees Can Minimize the Net Investment Income Tax
One strategy is to consider your filing status, which can affect the net investment income tax (NIIT) that successful retirees pay on certain investment income.


For retirees, navigating the intricate landscape of taxes is a nuanced task. However, determining your filing status is one of the most important decisions you’ll need to make. That’s because your taxable income is dependent on how you file. This is especially important when it comes to the net investment income tax (NIIT). So what is it, and what considerations should retirees make to minimize its impacts?
What is the net investment income tax?
The net investment income tax, or NIIT, is a tax levied on specific types of investment income, such as book royalties and capital gains, that impacts those with higher income levels. It went into effect in 2013 as part of the Health Care and Education Reconciliation Act of 2010.
According to the Congressional Research Service, it was ultimately included as a means to raise revenue and applies to those whose modified adjusted gross income (MAGI) surpasses the filing-status-based threshold determined by the IRS. Those who do are subject to paying the 3.8% tax. But there are a few steps retirees can take to minimize its impacts.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Understanding and optimizing NIIT thresholds
To figure out the best filing option for your situation, you’ll need to know what the thresholds are. The threshold for single filers is $200,000. For married couples filing jointly, that amount goes up to $250,000. If they’re married but filing separately, that amount drops significantly to $125,000. Strategically choosing your filing status can help you maximize these thresholds while reducing your overall tax liability.
Unlocking deductions and exemptions
Once you’ve figured out your filing status, you’ll want to see what deductions and exemptions you qualify for. These are dependent on several factors, like your gross adjusted income and age, so be sure to consult with a professional to figure out the best option for you. Finding ways to decrease your income can help mitigate the NIIT.
Timing of income recognition
For retirees with fluctuating incomes, the timing of income recognition becomes critical. By strategically managing when income is recognized, retirees can control the application of the 3.8% NIIT, smoothing out their tax liability over time.
Head of household advantage
Single retirees qualifying as the head of household may benefit from a higher income threshold before the 3.8% tax applies. This filing status is specifically designed for those providing a home for a qualifying child or relative. The head of household threshold is $200,000.
Estate and trust strategies
Retirees engaged in trusts or estate planning must carefully consider the implications for the 3.8% NIIT. The proper structuring of these entities can play a crucial role in minimizing the tax impact on investment income.
With these considerations in mind, it’s important to note that choosing your filing status is a decision you shouldn’t tackle on your own. Instead, view it as an integral part of a broader tax planning and financial strategy. If you have yet to file, be sure to meet with a financial adviser or tax professional who can help you make the right choices for your financial situation.
Related Content
- The Net Investment Income Tax is Broader Than You Think: The Tax Letter
- What to Do When You Have More Retirement Income Than You Need
- What is the Net Investment Income Tax and Who Pays it?
- The Five Stages of Retirement (and How to Skip Three of Them)
- More People Are Paying This Tax On Investment Income Each Year: Kiplinger Tax Letter
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Derek Miser serves as Chief Managing Member at Miser Wealth Partners, LLC, located in Knoxville, Tenn., and Tellico Village, Tenn. Miser Wealth Partners delivers family office services to successful retirees and entrepreneurs nationwide and in Puerto Rico. He recently published his first book, "Golden Years, Greener Pockets." This guide to tax efficiency for retirees is an excellent read for anyone contemplating or already retired.
-
Five ‘Big Beautiful Bill’ Tax Changes to Watch in the Senate
Tax Policy The House passed its version of Trump’s "One Big, Beautiful Bill." Here’s what to look for as Senate Republicans take up the mega legislation.
-
Making It Work: Expert Advice for Retirees Moving in with Their Adult Children
Multigenerational households are making a comeback, but the heads of household have changed. Here's a look at the pros and cons of living with your adult child's family.
-
An Expert's Guide to the Estate Planning Documents Everyone Needs
Estate planning is more than just writing a will. These are the documents you'll need in order to protect your family if you're seriously injured or worse.
-
Three Financial Planning Tips for the LGBTQ+ Community From an LGBTQ+ Financial Adviser
In light of social and political uncertainties, it's crucial that LGBTQ+ individuals review their estate plans, manage cash flow and savings and plan ahead if they want to expand their family.
-
The High Price of Skipping Workers' Comp Insurance
Two labor and employment attorneys highlight the penalties (fines, reputation damage and even jail time) that small businesses risk if they opt not to carry workers' comp insurance.
-
Watch Out for Annuity Surrender Charges: How to Avoid Them
Pulling money out of an annuity early can be a costly proposition. Here's how surrender charges work and one potential way around them — an annuity "ladder."
-
The Snake Bite Effect: How Fear Can Cost Investors Dearly
Does market volatility make you feel like running scared? That could be a costly mistake. Here's why ... and what to do instead.
-
I'm a Wealth Manager: This Is How to Reduce One of the Biggest Risks to Your Retirement
If the stock market dips when you retire, your portfolio may not have time to recover. But having a structured income plan for your retirement years can help.
-
Ditch the Fear: A Guide to Embracing Retirement Preparedness
Don't be scared about running out of money, be prepared. This financial professional explains how you can help take control of three critical retirement risk factors with a little planning.
-
Jet Set on a Budget: Expert Advice for Summer Travel
These cost-saving strategies, supplied by a financial adviser, are essential for enjoying summer travel without financial stress or debt.