How to Pay ZERO Taxes on $129,900 of Retirement Income
What if I told you there's a way to pull in $129,900 in retirement income and pay absolutely ZERO in federal taxes?
You'd probably think I'm nuts, right?
Or maybe you'd think this is some shady tax loophole that'll get you in trouble with the IRS.
I get it. It sounds too good to be true.
Here's the secret:
When you're working, you have no control over your taxes. You earn money. The government takes their cut. End of story.
But in retirement everything changes.
You get to choose where your income comes from. And different income sources get taxed completely differently.
Most people don't know this. So they pull money randomly from their accounts and get destroyed by taxes.
But not you. Not after today.
I'm about to walk you through a real case study. Step by step.
And when you're done reading, you'll know exactly how to do it yourself.
I'm not going to sugarcoat this. To pull off zero taxes on six figures of income, you need to understand the rules.
Some of it might make your head spin at first. But stick with me.
Because once you get it, you'll never look at retirement taxes the same way again.
The problem
Let's start with what happens if you're still working.
Say you earn $129,900 in wages. Here's what you pay:
Federal income tax: $11,127
FICA taxes (Social Security and Medicare): $21,000
Total tax bill: Over $32,000
That's brutal.
The goal
Meet Michael and Mary.
They're both over 65. They want $129,900 per year in retirement.
And they don’t want to pay federal income tax.
Here's what they have:
Brokerage account: $500,000 (half is gains, half is what they put in)
Traditional IRA: $1,000,000
Roth IRA: $100,000
Strategy 1: Social Security + dividends
Their brokerage account pays 3% dividends. That's $15,000 per year.
One of them claims Social Security early. That's $28,000 per year.
Total income: $43,000
Tax bill: $0
Why zero? Two reasons:
Their Social Security isn't taxable yet (more on this below)
Their standard deduction is $33,200 (married, both over 65)
But $43,000 isn't enough. They want $129,900.
How Social Security taxation works
This is key. Social Security can be 0% to 85% taxable.
It depends on your "provisional income." That's your other income plus half your Social Security.
For married couples:
Under $32,000: 0% of Social Security is taxable
$32,000 to $44,000: Up to 50% is taxable
Over $44,000: Up to 85% is taxable
Michael and Mary are under $32,000. So zero Social Security is taxable.
Strategy 2: Skip Social Security for now
What if they don't claim Social Security yet? What if they just live off their brokerage account?
They still get $15,000 in dividends.
Now they sell stock to get the rest. They need about $115,000 more.
When they sell $230,000 of stock:
$115,000 comes from money they already paid taxes on
$115,000 comes from gains they haven't paid taxes on yet
Only the gains are taxable. That's $115,000 in long-term capital gains.
Total income: $129,900 ($15,000 dividends + $115,000 gains)
Tax bill: Still $0
Why long-term capital gains are so special
Long-term capital gains get special tax rates: 0%, 15%, or 20%.
You pay 0% until your taxable income hits $96,700 (married filing jointly).
Michael and Mary's taxable income after their standard deduction: $96,700
They're right at the edge of the 0% bracket. Perfect.
Strategy 3: Use Roth conversions
Here's another way to get the same result.
Instead of all capital gains, they do:
$15,000 dividends
$29,200 Roth conversion (from traditional IRA to Roth IRA)
$85,700 long-term capital gains
Same total: $129,900
Tax bill: Still $0
The Roth conversion gets covered by their standard deduction. The capital gains stay in the 0% bracket.
Now they've moved $29,200 from a taxable account to a tax-free account. That money will never be taxed again.
The main takeaway
When you're working, you get income and pay whatever taxes are due. You have no control.
In retirement, you choose where your income comes from. You can control your tax bracket.
Different accounts get taxed differently:
Traditional IRA: Ordinary income rates
Roth IRA: Tax-free
Brokerage account gains: Capital gains rates
Social Security: Special rules
If you plan right, you can create your own tax bracket.
Most people don't plan. They pull money randomly from accounts. They pay way more taxes than they need to.
Don't be like most people.
The question isn't "How do I pay zero taxes this year?"
The question is "How do I pay the least taxes over my entire retirement?"
Sometimes that means paying some taxes now to save more later.
But if you want to see how low you can go in one year? This is how you do it.
You need different types of accounts. You need to understand the rules. You need to plan ahead.
Most people wait until they're already retired to think about this. By then, it's too late.
Start planning now.