One of the things I’m realizing in my CFP® studies is this:

Tax planning is often less about what you buy…
and more about what you sell.

And that’s where FIFO vs. LIFO comes in.

If you invest in a taxable brokerage account, this matters more than most people realize.

🧠 First: What Do FIFO and LIFO Even Mean?

These are methods for deciding which shares get sold first when you sell an investment.

Let’s break it down.

FIFO = First In, First Out

The first shares you bought are the first shares you sell.

LIFO = Last In, First Out

The most recent shares you bought are sold first.

It sounds small.

It’s not small.

Because each “lot” of shares has a different purchase price and therefore a different taxable gain.

📊 Why This Affects Taxes

Let’s say over time you invested in the same ETF multiple times.

Example:

• 2020: Bought 100 shares at $100

• 2022: Bought 100 shares at $150

• 2024: Bought 100 shares at $200

Now in 2026, the price is $220 and you sell 100 shares.

What’s your gain?

It depends on which shares are sold.

If FIFO is used:

You sell the 2020 shares (cost basis $100).

$220 – $100 = $120 gain per share
100 shares × $120 = $12,000 taxable gain

If LIFO is used:

You sell the 2024 shares (cost basis $200).

$220 – $200 = $20 gain per share
100 shares × $20 = $2,000 taxable gain

That’s a $10,000 difference in taxable gain.

Same investment.
Same price.
Different tax outcome.

This is why tax lot selection matters.

💡 What Most Brokerages Default To

Most brokerages default to FIFO unless you change it.

Some allow you to:

• Select specific lots

• Use average cost

• Switch to LIFO

• Use “specific identification” (the most flexible method)

Specific identification is often the most strategic because you can choose exactly which shares to sell.

That allows:

• Tax gain management

• Loss harvesting

• Bracket control

But you have to know it exists.

🏦 Important: This Only Applies to Taxable Accounts

FIFO vs LIFO does not matter inside:

• 401(k)

• 403(b)

• IRA

• Roth IRA

• HSA

Why?

Because those accounts are tax-sheltered.

Selling inside them does not trigger capital gains tax.

This conversation is strictly about brokerage accounts.

🧾 Short-Term vs Long-Term Capital Gains

There’s another layer.

Shares held:

• Under 1 year → Short-term (taxed as ordinary income)

• Over 1 year → Long-term (lower capital gains rates)

So not only does cost basis matter...
Holding period matters too.

Good tax planning often combines:

• Lot selection

• Holding period awareness

• Income bracket awareness

This is the level of nuance I’m learning more deeply now.

🏠 Why This Matters for Real Life

Think about:

• Selling investments for a down payment

• Funding a renovation

• Paying for a wedding

• Covering a large tax bill

• Early retirement bridge years

If you don’t pay attention to lot selection, you could accidentally:

• Spike your taxable income

• Push yourself into a higher bracket

• Trigger Medicare IRMAA tiers later in life

• Increase state tax liability

All because of default settings.

🧠 What I’m Realizing in My CFP® Studies

Investing is not just:
“Buy good funds.”

It’s:
“How do distributions, gains, and withdrawals interact with your tax return?”

FIFO vs LIFO is a tiny checkbox on a brokerage platform.

But that checkbox can change your tax outcome by thousands of dollars.

That’s what real planning looks like.

Not reacting. Designing.

NurseMoneyDate® Reflection

Most nurses are taught:
Save. Invest. Don’t touch it.

But if you’re building wealth in a brokerage account, especially beyond retirement accounts, understanding tax lot strategy is part of sophistication.

It’s not about gaming the system.

It’s about not overpaying accidentally.

And that’s the level I’m training at now.

Structure.
Intentionality.
Tax awareness layered on top of investing.