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Or is what you are saying that by selling $80K in stock, the capital gains may only be $30K when you net out the initial cost of the stock, so we still only get taxed on the $40K in TIRA income, because our total income would only be $70K.

Sure. When you spend money from your savings account in retirement, the funds are already taxed. No additional tax is due.

When you sell securities to fund retirement, you only pay income tax on the gain over cost. That too can mean a small tax bill.

When you take distributions from an IRA, you are given an allowance for any after tax contributions. Hence, the tax due is not 100% of the distribution, but usually the adjustment is small. And the tax due is at the ordinary income tax rate. So the rate is higher than capital gains.

But bottom line is money in your IRA or 401k is subject to tax by someone eventually. So plan accordingly. If you are in the 15% tax bracket letting your heirs pay at their income tax rate sounds like a bad idea.

I've just been through an estate situation where an aunt in a nursing home had a bunch of saving bonds that include deferred income tax bills. Her nursing home expenses were probably deductible as a medical expense. So her estate probably could have paid the income taxes due and wiped out most of the bill with her medical deductions. But executor thought that was too complicated. So heirs paid income tax at their income tax rates. (Another little detail to think about.)
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