Introduction

You might think generating $120,000 in annual retirement income would mean paying a hefty tax bill—but what if you could structure your withdrawals to owe nothing at all? This post breaks down how to pull $120K per year from your retirement accounts and still pay $0 in federal income taxes. If you’ve ever wondered, “Is $120K enough to retire?”—you’ll see that with the right strategy, it just might be.

Start with the Right Accounts

To make this strategy work, it’s essential to have your money spread across different types of accounts:

• Tax-deferred accounts (like a traditional IRA or 401(k))

• Tax-free accounts (like a Roth IRA)

• Taxable brokerage accounts

Each account type is taxed differently, and using them in the right order is key to keeping your income tax-efficient in retirement.

A $120K Retirement Income Breakdown

Here’s how one might generate $120,000 of retirement income without triggering any federal tax:

1. $20,000 from Roth IRA – Because Roth withdrawals are tax-free, this portion adds no taxable income.

2. $20,000 in long-term capital gains – Taken from a taxable brokerage account, and if you’re in the 0% capital gains bracket, you owe nothing.

3. $20,000 in qualified dividends – Also from a taxable account and taxed at 0% when income stays within certain thresholds.

4. $25,000 in IRA distributions – This is technically taxable, but the standard deduction ($29,200 for a married couple over 65 in 2024) wipes it out.

5. $35,000 in Social Security – Thanks to the way Social Security is taxed, most or all of it can be tax-free if other income is kept in check.

Add it all up: $120K in gross income, $0 in taxes.

Why This Works

The U.S. tax code offers unique advantages to retirees who plan ahead. By blending income sources strategically and staying within certain income thresholds, it’s possible to live well without sending thousands to the IRS.

This isn’t a loophole—it’s a legitimate and legal strategy that leverages Roth accounts, capital gains brackets, and Social Security tax rules to your advantage.

So, Is $120K Enough to Retire?

If you can cover your living expenses with $120,000 per year—and generate that income tax-efficiently—it absolutely can be. The key is not just how much you withdraw, but where that income comes from. With the right retirement planning strategy, you can maximize spending and minimize taxes.

Conclusion

$120K a year might sound like it comes with a tax burden, but smart retirees know how to make that number work for them. If you’re asking, “Is $120K enough to retire?”—the answer could be yes, especially when paired with a tax-efficient withdrawal strategy. Planning early and using all account types effectively is the key to making your money last.

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