Retire early and pay zero taxes
If you’ve made it this far in your FI journey, you must either be at or near the summit of the wealth building mountain. Congratulations! You worked hard, saved even harder, invested rather than spent on lifestyle inflation, and now want to retire early.
As a full time worker, the taxman has had his hooks in you for probably 10 to 20 years or more by now. Now that you are eyeing retirement, it’s time to find out how you can minimize and even potentially eliminate being income taxed again when you draw down on that hard earned nest egg.
How is this possible? Simple. The average American family of 4 has an annual budget of ~$70K, a figure you can easily draw down in early retirement tax free.
For example, in a brokerage account you can withdraw up to $94K in capital gains at a 0% tax rate every year. And of course, as you probably already know from filing your taxes yearly, you are already entitled to the standard deduction ($29,200 married filing jointly) plus other eligible credits every year. That’s a lot of potential of tax free earnings you can live off.
When you and your spouse were working, you didn’t withdraw from your brokerage accounts, and you made far more than $29,200 a year where you paid a slew of taxes every year. But . . . now that you will no longer be earning a regular worked income, the game changes to your tax advantage. Your brokerage account, IRAs, HSAs, and standard tax deduction entitlements can easily combine for a tax free early retirement.
The below articles will explore this topic in detail and provide a specific and easy to follow roadmap that you can apply to your own financial situation.
If this topic is new to you, the “How to Retire Tax Free” guide is the best place to start; it will also provide a simple case study showing how Roth conversion ladders can create ~$700K in tax free money in 15 years just by shuffling paperwork once a year.
If you are more advanced in this topic, hop over to the tax free calculator or tax loss harvesting for further in depth instruction.
How to Retire Tax Free
Definitive guide on how retire early and tax free
Tax Free Calculator
Find exactly how long your tax free assets will last
Tax Loss Harvesting
How to turn market losses into gain at tax time