A retiree lost $2,400 in tax savings due to an overlooked wash-sale rule triggered by automatic dividend reinvestment.

A 66-year-old retiree in Pennsylvania aimed to generate $55,000 annually from a $1.1 million portfolio but lost $2,400 in tax savings because her IRA automatically reinvested dividends shortly after she sold shares at a loss. This triggered the IRS wash-sale rule, disallowing part of her $90,000 tax loss harvest. The mistake highlights the importance of turning off dividend reinvestment plans (DRIP) before tax-loss harvesting, especially for retirees relying on portfolio income. Small tax errors can reduce deductions, forcing retirees to withdraw more, take on more risk, or cut spending over time.