How We Helped Clients Generate $100,000 in Tax-Free Income in Retirement
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Why This Story Matters — And Why You Should Listen to Me
As a financial advisor, I’ve helped hundreds of retirees navigate the complex world of taxes, investments, and income planning. One thing I often hear is, "If it sounds too good to be true, it probably is." But when it comes to tax-free income in retirement, this saying doesn’t always hold up.
The truth is, tax-free retirement income isn’t a myth. But it does require strategy, structure, and the right mix of income sources. Let me walk you through a real-life case study of how we helped one couple, John and Jane, generate $100,000 in tax-free income during retirement.
Key Takeaways
Tax-free retirement income is possible — with the right strategy
Roth IRAs are valuable, but not the only tool
Combining Social Security, dividend income, strategic IRA withdrawals, and brokerage account distributions can create a powerful tax-free income blend
Ongoing tax planning is critical for minimizing lifetime tax liability
The Situation: John and Jane Doe's Retirement Snapshot
John and Jane came to us with a strong financial foundation:
$500,000 in a joint brokerage (taxable) investment account
$650,000 in traditional IRAs
$150,000 in Roth IRAs
Social Security benefits:
John: $3,200/month
Jane: $2,000/month
Combined annual total: $62,400
Their goal? Create $100,000/year in retirement income with as little federal income tax as possible.
Step 1: Leverage Social Security + Qualified Dividends
We began by layering Social Security and qualified dividend income from their brokerage account:
Social Security: $62,400
Qualified Dividends: $10,000
Social Security is taxed based on something called provisional income, and in this case, their dividend income and planned withdrawals kept their provisional income low enough that none of their Social Security was taxable.
➡️ Total tax-free income so far: $72,400
Step 2: Smart IRA Withdrawals
Next, we took a careful look at their traditional IRA distributions. We withdrew $11,600 from John’s IRA—just enough to stay within the standard deduction for a married couple ($29,200 in 2025).
Because their other taxable income was low, this withdrawal fell entirely within the tax-free zone.
➡️ New total: $84,000 tax-free income
Step 3: Tax-Efficient Brokerage Withdrawals
To reach the full $100,000 goal, we withdrew $16,000 from their brokerage account. Here’s the breakdown:
$8,000 was return of principal (non-taxable)
$8,000 was long-term capital gains, but their income was still within the 0% long-term capital gains tax bracket
➡️ Final total: $100,000 in tax-free income
Why This Worked
In my experience, it’s not one tool or trick that creates tax-free income. It’s the coordination of multiple strategies:
Keeping provisional income low to minimize or eliminate Social Security tax
Using the standard deduction to shelter IRA withdrawals
Leveraging the 0% capital gains bracket on long-term gains
Maintaining a balance across tax-deferred, tax-free, and taxable accounts
Beyond Year One: Planning Ahead
We also discussed with John and Jane how to make this strategy sustainable:
Roth Conversions: In years when their income is lower, we plan partial Roth conversions to shrink future Required Minimum Distributions (RMDs)
Tax Gain Harvesting: Taking gains while still in the 0% bracket
IRMAA Avoidance: Keeping MAGI under key thresholds to avoid Medicare surcharges
This isn’t a set-it-and-forget-it strategy—it’s an ongoing conversation. And it’s one of the best ways I’ve found to reduce lifetime tax liability.
Conclusion: Yes, Tax-Free Retirement Income Is Possible
John and Jane didn’t have to gamble, chase risky investments, or funnel all their savings into Roth accounts to build a tax-free income stream. They just needed a plan.
By understanding how the tax code works in retirement and using all available income tools in the right order, we helped them keep more of what they earned—and sleep better at night.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQs
Is it really possible to pay zero federal tax in retirement?
Yes, with the right mix of Social Security, Roth income, and tax-efficient withdrawals, some retirees can avoid federal income tax altogether.
Are Roth IRAs the best way to get tax-free income?
They’re powerful tools, but not the only ones. Dividends, capital gains, and even traditional IRA withdrawals (up to the standard deduction) can be tax-free when used properly.
Can this strategy work for people with higher incomes?
Yes—though higher incomes require more planning, especially to manage IRMAA and Net Investment Income Tax. The key is balance and long-term strategy.
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.