Having a large retirement income can provide a lot of comfort in your golden years — but the more the IRS claws away in taxes, the less you’ll have to live on.
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The good news is, it’s possible to have a retirement income of around $100,000 and pay no federal taxes. Here’s how.
Take advantage of long-term capital gains tax rules
When you sell investments in a taxable brokerage account, you’re taxed only on the gains (the sale price minus the cost). If you hold your investment for longer than a year, you’re taxed at the long-term capital gains tax rate. That rate also applies to qualified dividends, which are dividends paid by a stock you’ve held for more than 60 days during a 121-day period starting 60 days before the ex-dividend date (the market day before the dividend record date, which is the date you must own the stock to be eligible for the dividend).
Long-term capital gains tax rates (0%, 15% or 20%, depending on your income) are much lower than ordinary income tax rates. In 2024, a married couple with a taxable income below $94,050 pays no taxes on long-term capital gains. If you can keep your taxable income below this threshold, you’ll pay 0% on any income from qualified dividends or from the sale of assets in a taxable brokerage account that were held for over a year.
Maximize your Social Security benefits
Part of your Social Security benefit can be taxed, but only if you have a provisional income above $25,000 for single tax filers or $32,000 combined for married joint filers. Provisional income equals:
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Your adjusted gross income (AGI), plus
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Tax-exempt interest, plus
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Half of your Social Security benefits
So, without other taxable income counted in your AGI and no tax-exempt interest, a married couple could potentially bring home a combined Social Security benefit up to $64,000 annually without paying federal tax.
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Keep income below the standard deduction
You don’t pay taxes on all of your income — you’re allowed to claim deductions. For 2024, the standard deduction is $14,600 for single taxpayers and $29,200 for married joint filers. There’s an additional standard deductible for seniors 65 and older of $1,950 for single filers, or $1,550 per person 65 or older for married filers. That means retired couples 65-plus can earn up to $32,300 in income without being taxed.
Be strategic about how you take your withdrawals
The key to paying zero taxes when you’re 65-plus is to use all of these strategies to develop a plan for where your income comes from. You’ll want to:
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Keep taxable income to below the amount of your standard deduction.
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Rely on income that’s taxed at the long-term capital gains rate
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Maximize Social Security.
Here’s an example, based on Moneywise estimates:
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$50,000 in Social Security benefits
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$20,000 from qualified dividends or profits from the sale of assets held for over a year.
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$20,000 in distributions from a Roth IRA (tax-free withdrawals after age 59-and-a-half)
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$10,000 in distributions from a 401(k) or IRA
While you’re bringing home $100,000:
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Provisional income equals $55,000 so around $15,300 of Social Security benefits are taxable.
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Total taxable income is around $45,300 and the standard deduction eliminates $32,300 of that amount.
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Because your taxable income is below $94,050, you pay a 0% long-term capital gains tax rate on the income from qualified dividends or on the income from selling profitable investments.
In the end, your tax bill is $0. And this is just one of many scenarios where you can owe the IRS nothing while having $100,000 to spend.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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