Never Pay Taxes Again I received an email from one of the big brokerage firms, titled “Savvy Year-End Tax Strategies.”  It contained much advice, such as “Consider contributing as much as you can to a 401(k)” and “Be careful when selling highly appreciated assets, such as stocks, land, fine art, precious metals, or antiques.”  This might be considered good advice by some, but I just call it, “Boring!”

Benjamin Franklin once wrote that nothing is certain except death and taxes.  I beg to differ.  I personally expect to never pay taxes again, legally and respectfully.

Perhaps you would like to do the same?

There are many reasons to not pay taxes.  Some may have political, moral, or philosophical reasons for doing so.  Maybe you don’t want to pay for wars, for example.  But the one that is strongest for me is also the most straight forward:  If you don’t need to pay taxes, you don’t need to save as much

Let’s use an example to make this clear.  A typical middle class family man in the United States goes out for dinner with his wife at one of the nation’s many fine fast food establishments, paying $20 for a couple super sized mechanically separated chicken sandwiches, oily, starchy, and salty side dishes, insulin-bomb sodas, and artificially flavored and colored desserts.  Ignoring the long term health costs of such a decision, how much does Joe Average pay for this meal?  $20?  More like $33.50

Joe Average paid for his meal with after tax dollars.  Assuming a 25% marginal tax rate, social security and medicare taxes (both individual and employer), Joe had to earn $33.50 in order to have a $20 bill in his wallet to pay for that meal, paying $13.50 in tax before even walking into the restaurant.  Including a 10% sales tax already included in the $20 total check, $15.50 was paid in tax.  If they drove to the restaurant, they even paid tax on gas

For the same $33.50 in food spending (there is no sales tax on groceries in Washington State), we enjoyed a couple organic salads, grass-fed steaks, a side of vegetables with garlic and bacon, a couple glasses of wine, and had $10 left over.  Not paying taxes has its rewards.

So how do we eliminate taxes?  All we need to do is follow 4 simple rules:

  • Choose leisure over labor
  • Live well for less
  • Leverage ROTH IRA Conversions
  • Harvest Capital Losses AND Capital Gains

Choose Leisure Over Labor

The tax laws in the US target people who work for a living.  If you get a paycheck, the US government classifies that paycheck as Earned Income, with special taxes just for you.  This is one part of the reason that Warren Buffet says his secretary pays more tax than he does.  Social Security and Medicare taxes are only applied to Earned Income, 15.3% tax in total for most people.

The only way to avoid paying these taxes is to not work.  Now leisure comes with an added bonus.  I intend to never have earned income again, completely eliminating this tax

Live Well For Less

The more a person or family spends a year, the more likely they will be required to pay income taxes, due to the graduated tax brackets that exist in the US and many other countries.  Using the 2012 tax rules, a married couple can earn up to $19,500 a year without paying tax.  This is because the government allows us a standard deduction for a married couple of $11,900 and an exemption of $3,800 per person.  Other deductions can be applied, such as the $17,000 for 401k contributions, raising the untaxed income level to $36,500.  (That advice from the big brokerage firm hit the spot on this one.)  Normally the deductions are increased every year with inflation or some arbitrary level decided by Congress

Once income and spending exceeds this level, taxes must be paid.  Unless…

Unless that income comes from qualified dividends or long term capital gains.  In this case, a married couple can have $19,500 a year in income AND $70,700 in investment income, TAX FREE (if that isn’t a strong signal to not work, I don’t know what is.)

If spending is kept below these levels (and thus incomes) then there will be no taxes

We live luxurious lives, better than kings of yesteryear, for about $36k a year.  It turns out spending more than that wouldn’t make us any happier.

But wait, there’s more

Leverage ROTH IRA Conversions

If we follow normal tax advice during our working days, we will retire early with a 401k or IRA or two.  Except under special rules, this money can’t be spent until we turn 59.5, upon which it is taxed.  But there is a way to avoid this, by converting it to a ROTH IRA.  Withdrawals from a ROTH IRA are tax free for life

Once we’ve chosen leisure over work, we can convert our 401ks and IRAs to a ROTH IRA, a small amount each year.  Any dollars converted to a ROTH are considered income, but we can earn up to $19,500 a year and pay no tax.  The Mad Fientist explains more in a great post on his blog.

Other income sources can contribute to this $19,500 limit, such as interest on bonds, rental income, short term capital gains, and earned income.  Some deductions can also be made, such as capital losses and HSA contributions (a common option for people buying health insurance through the new government exchanges under the ACA.)

Harvest Capital Losses AND Capital Gains

Harvesting Capital Losses is a common practice.  If you sold a stock for less than what you paid for it, you’ve had a capital loss.  This loss can be used to offset capital gains and, if it is big enough, even up to $3,000 per year of Earned Income.  There is a special rule for Wash Sales that needs to be watched out for, but the Mad Fientist wrote a great article about harvesting capital losses that can guide us.

For stocks that have gone up in value, normally taxes must be paid on the gains.  But…  not if those gains are less than $70,700 (again, 2012 values) AND our earned income and taxable interest is sufficiently low that it is taxed at the 10% or 15% marginal rate.

In our own case, if we assume that our $36k a year spending comes from Qualified Dividends and Long Term Capital Gains, then we have an extra $34,700 in tax free capital gains to play with.  Why not sell some extra stock, locking in that $34,700 gain, and immediately buy it back to raise our basis.

For example, let’s say we bought some of the VTI ETF over 1-year ago for $50,000, and it is now worth $84,700.  It must be over 1 year ago in order to be considered a Long Term Capital Gain, an important time frame.  Short Term Capital Gains are taxed at the normal marginal rate.  Our basis in the stock is $50,000, with a $34,700 long term gain.  When we sell it, we will pay NO TAX since we are keeping our total investment income below $70,700 (which also includes our qualified dividend income.)  When we buy the VTI ETF back, our basis is now $84,700.  The gain is locked in tax free, forever (Update: Mad Fientist has added a post on Tax Gain Harvesting as well.)


Do you want to Never Pay Taxes Again?

Following these 4 simple rules, it is possible for any US Resident. Maybe following these guidelines will help you retire earlier and live better.

A key part of our tax optimization is being able to quickly and efficiently view our full financial and tax picture.  Personal Capital is a great FREE online financial management tool.  Give it a try

Update (1):

One item to be careful of is new with the Affordable Care Act.  It is possible for an early retiree to get massive health insurance subsidies, as long as income is less than 400% of the Federal Poverty Level ($62,040 in 2013.)  At our $36k per year spending level, we qualify for several thousand dollars of assistance.  Being aware of this threshold is important when deciding size of a ROTH IRA Conversion or Capital Gain Harvest.

Read an in depth review in our post on the Affordable Care Act and its tax implications

Update (2):  It is one thing to understand the theory, and another to see it in practice.  Check out our actual 2013 tax return to see and believe


uncle_sam_taxesA special note:
Taxes are used for many useful and good purposes for the collective good, such as building roads, the filming of Sesame Street, and helping the disadvantaged. Isn’t it part of our moral obligation to help pay for these things?

I believe this is true, although it isn’t necessary to pay it annually. The taxes we paid during our working years were many, disproportionate to our use of roads (we bike and walk instead of drive) or our viewing of Sesame Street (we don’t own or watch TV.)

When it comes to helping others, there are many ways to help.  The government helps in some ways, but other organizations do as well, more so even. Those organizations are very receptive to donations of both time and money. I encourage the giving of both.

As an added bonus, donations of cash or capital assets are tax deductible 🙂  And the donation of appreciated assets eliminates all capital gains taxes for both parties.  Win win.  If this sounds intriguing, check out a post by Jim Collins about making the most of your donations, How to Give Like a Billionaire

Tax Season is Upon Us

TurboTax is up-to-date and ready for tax year 2015. Get started today for FREE with the Federal Free Edition.

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194 Responses to Never Pay Taxes Again

  1. Mark says:

    Wow what a great post. I am not smart enough to critique it but you lay it out very clearly. My challenge is at age 57 I have some pretty ingrained spending habits and even though my wife and I are quite frugal we still manage to spend a ton of money. You young and super smart bloggers are an inspiration to learn from. Thank you for writing. I will read the links you provided.

    • Go Curry Cracker says:

      Hi Mark

      Thank you, I’m glad you enjoyed it, and thank you also for your kind words.

      Best of luck on reducing your tax bill


    • I agree, great stuff. I hope to implement some of this and get out of the “I have to go to work” crowd soon. I want to do many things, but my day job is not necessarily one of them. Thank you for sharing this wonderful strategy!

  2. Mad Fientist says:

    Excellent post, Jeremy!

    I’m actually publishing an article on tax-gain harvesting next week and will definitely be linking to this post in that article.

    Only one more year of wage earning left for me and then I’ll be joining you in the $0 tax club!

  3. Chelsea says:

    Hey Jeremy, I always enjoy reading your article about personal finance as I learn something new from you every time . Maybe it’s because of my accounting nerves, but I usually do some independent research and see if the same rule can apply to us. During the research, I noticed the 0% rate on capital gains will increase to 10% in 2013. How do you expect this to affect your tax planning this year?

    • Go Curry Cracker says:

      Hi Chelsea,

      As I read the American Taxpayer Relief Act of 2012 (signed Jan 2013), the capital gains taxes remain the same as they were in 2012. For earners taxed at the marginal rates of 10% or 15%, long term capital gains are taxed at 0%.

      The table titled “Capital Gains Taxation in the United States” on this Wikipedia article states the same

      This is now a permanent part of the US tax code, making permanent the so-called “Bush tax cuts.”



      • zamland says:

        The long term capital gains taxes remain the same, but what about the qualified dividends. Is it the same or did it go up as well?

        • Go Curry Cracker says:

          They are both still 0%. See our 2014 tax return as an example.

          • Dave says:

            I see nothing in this list where you are withdrawing from your Roth IRA without penalty. My issue is that I have a 401k and IRA with a decent amount that I can’t get out. I’d like to covert once I quit work or do a backdoor Roth. Is it best to bleed this amount off each year up to my 0% or low income bracket, then wait 5 years to withdraw penalty free? My assumption is that you didn’t write about taking money out of your Roth before 59 1/2 because you probably are not drawing from it. My income is way too high plus I have some rentals that make it impossible for me to convert without being in a high bracket. Just makes sense to do it when I quit work and in a much lower bracket. I hope to quit soon. I just turned 41.

  4. jlcollinsnh says:

    Brilliant post and great insights. One of the reasons yours is rapidly rising to the top of my favorite blog list.

    Linking to one of my other favorite bloggers, MF, is a nice bonus!

    • Go Curry Cracker says:

      Wow, thanks Jim! That is a real honor, and the feeling is mutual

      I also really enjoy Every post makes me think. I’ve learned a lot there

  5. Chelsea says:

    I found the data on AICPA. If you search “Income tax planning strategies for 2012 – AICPA”, it will be the first one pop up in google. (I can’t copy the link as it’s a powerpoint).

    • Go Curry Cracker says:

      Hi Chelsea,

      I found that ppt. On Page 2, it states:
      Bush tax cuts scheduled to expire at the end of 2012

      He then goes on based on that assumption.

      However, the Bush tax cuts were made a permanent part of the tax code by the American Taxpayer Relief Act of 2012 (signed Jan 2013), so his assumption that the qualified dividend tax rate increases to 10% in 2013 and beyond is incorrect

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  7. ptramma says:

    Another little thing to add to the final line of you post: if you donate appreciated securities, not only are they deductible, but neither entity has to pay capital gains taxes. I try to make all of my charitible donations through shares of appreciated stocks. You get all of the benefits of a donation, but the additional benefit of no capital gains taxes.

  8. J. Money says:

    Haha… I’m with Mark up there in that I’m not smart enough to critique either, BUT, I am glad you added a little ditty there at the end on your perspective of not paying taxes as moral obligation/etc. I actually had some drinks with Johnny Moneyseed the other night who linked to your post here and why I’m now reading (and, oddly enough, hung out with Mad Fientist too just last month – great guy!) and asked him that same question – about feelings of not paying taxes. I don’t remember what his answer was, but I told him I’m going to interview all extreme retirees and compile a list to blog about one day 😉 If you’d like to be on it, I shall include you good sir.

    Regardless, excellent post. First time here and liking what I see – thx for sharing!

    • Go Curry Cracker says:

      Welcome J. Money, thank you very much for stopping by and for your kind words

      I would be honored to make the cut for your list and future post. Thank you for the opportunity

      Drinks are on me if you are ever in the area 🙂 Budget friendly sexy ginger margaritas are just down the street

      • J. Money says:

        Rock on. Now if only I can catch up with y’all first wherever you are in the world! 😉

        • LizWithLime says:

          The year is now 2016 & the long awaited interview (via podcast) is now live! That’s what brought me to this article. I wanted to learn more about Cost Basis after hearing it on the M.O.N.E.Y. show. And I was certainly not disappointed. Thanks Go Curry Cracker and J. Money for all you do. Cheers to a wonderful rest of the year!

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  10. Interesting no one attacked you in the comments on not paying taxes. As if you have never paid taxes during your working career! Good summary of how to not pay taxes. That’s pretty much my plan, and having a few kids makes it even easier.

    The ACA subsidies do make it a little trickier, and effectively impose an additional marginal tax at a relatively lower level than the top end of the 15% bracket (where you pay 0% on LT CG’s).

    You could probably just pay the penalty and forgo US based insurance, now that you know you won’t be denied insurance later.

    • Go Curry Cracker says:

      I was waiting for the attack comments. This post has been viewed thousands of times now and had some wide exposure. I guess it has to get posted on reddit before the haters come 🙂

      I have a post coming on Obamacare, the tax implications, and our plans for health insurance. Stay tuned

      • Good luck. I’m going to write about how we will avoid paying $80k or so in student loans due to a low income and participating in the Income Based Repayment plan. Guaranteed way to get some negative comments.

      • I think you may have managed to ward off any negative comments with your addition at the end. A master stroke indeed 😉

        All great advice especially about the tax advantages of charitable giving.

  11. Fantastic post! As someone who used to work in public accounting and the world of filing taxes, this makes total sense, and of course, appeals to many, myself included. You didn’t make the rules, paid more than your fair share while working, and shouldn’t experience negatively for taking advantage of the same rules that penalized you earlier. Charge on, richer, wiser, and tax-free.

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  14. takalak says:

    Hello Jeremy – Thanks for the great post, I have enjoyed reading your blog and learning from you. Its exciting to witness people achieve financial independence and early retirement!

    I wonder if you would mind a greenhorn follow-up tax question. You mention that one need not pay taxes on qualified dividends and/or long term capital gains if income from those and earned sources keep you within the 10%-15% tax bracket threshold. In 2012, as you have mentioned, this amounts to $70,700 for qualified dividends/long-term cap. gains.

    Lets say that one actually had an income of $70,710, ten extra dollars from qualified dividends/long term capital gains, which places them in the next marginal tax bracket (25%). May I assume that only those $10 extra dollars would be taxed at the next marginal tax rate? Or would the additional $10 disqualify the first $70,700 from being tax-free?

    I think I know the answer, but I want to get your feedback. Thank you for your thoughts.

    • “May I assume that only those $10 extra dollars would be taxed at the next marginal tax rate? Or would the additional $10 disqualify the first $70,700 from being tax-free?”

      It’s the former. You would pay tax on the $10 extra dollars at a rate of 15% (the div/cap gain rate for the ordinary income 25% tax bracket).

    • Hi takalak

      Thank you, I am grateful to hear that you are enjoying the blog

      The answer to your question depends on where your income comes from.
      If the income in question is from Qualified Dividends and Long Term Capital Gains only, then the extra $10 would be taxed at 15% (the max tax rate for dividends and long term gains.)

      If the income is from “other income”, (interest, short term cap gains, earned income from a job, IRA distributions due to ROTH conversions, business income, etc…) it would be taxed at the marginal rate of 25%.

      In other words, if we overestimate how much of a ROTH conversion to do we don’t get stuck with paying a huge tax bill, just a few dollars for however much we overestimated

      It is important to note here that an extra $10 of “other income” only counts if you have a total “other income” that by itself puts you in the 25% marginal rate, which would be $37,850 in 2013 (for married filing jointly)

      You can experiment with different values using a spreadsheet and the Qualified Dividends and Capital Gain Tax Worksheet for Line 44 of the 1040, or you can use Intuit’s TaxCaster tool (easier but with less visibility into the details)

      • takalak says:

        Thanks, Jeremy (and Justin) for answering my question! I am glad to know that the first ~$70k of long-term capital gains / qualified dividends are tax-free. It feels good to know that my earmarked (and predicted) early retirement distributions in those categories will not be taxed. I was able to confirm this by plugging this scenario into the tax calculator as well, great resource by the way! Thanks again 🙂

  15. Reepekg says:

    Where are all these qualified dividends coming from? In the Mad FIentist podcast which pointed me to your site, you said you were heavy in VTI… which I also own… which a quick double check tells me that it throws off ordinary dividends. In fact, I was disappointed to see all the index funds I have like IVV, VTI, and VNQ are ordinary dividends.

    I’m about 28 with a 60+% savings rate and 1 year/20% into the FI journey, so I found your story of actually doing this very inspirational.

    • Go Curry Cracker says:

      Hi Reepekg

      Welcome, thank you for stopping by and for the great question

      A lot of what VNQ pays out will NOT be a qualified dividend, as it is a REIT. That is just the nature of the beast on this one. REITs are best held in a tax deferred account for this reason

      For VTI, the majority (if not all) of the payout will be qualified dividends if the fund is held longer than 60 days. But, if I look in my brokerage account right now they show 100% of payout to date being ordinary dividends, with this disclaimer:

      “The tax information reported above may not reflect all adjustments necessary for tax reporting purposes and may not be appropriate for use in preparing a tax return. Qualified dividend and post-May 5 capital gain income that may be taxable at the reduced rates introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JAGTRRA) may not yet be separately reported above.

      That is a long way of saying, “Don’t worry about it, when we send you your 1099 in early 2014 it will all be OK.” On my 1099 from last year, 100% of the VTI payout was reported as qualified dividends

      A 60% savings rate at age 28 is impressive! Well done, and congratulations



    • I wouldn’t worry about VTI and IVV. They should spit out almost 100% qualified dividends. VNQ and similar REITs won’t be all qualified, but some of the “dividend” will be return of capital (ie not taxable income at all). For VNQ I seem to recall about 1/3 the dividend was non-taxable return of capital.

      The biggest funds I own that don’t pay nearly 100% qual. divs are the international funds. A portion of the dividends are qualified, but half or more might be non-qualified (and get taxed as ordinary income).

      • Go Curry Cracker says:

        The international funds (often) will have tax withheld before the dividends are paid to you. That international fund owns some stock of French companies? Some tax gets paid to France. Some stocks in Japan? Tax gets paid to Japan

        Since the US government gives US citizens a credit for foreign tax paid on their tax return, it can be a good strategy to have some US tax liability

        For example: We own some VEU. Last year we paid about $400 in foreign tax on the distributions from this fund. Even though we intend to pay $0 in US tax this year, I am planning to “owe” $400 of tax which will then be wiped out by the foreign tax credit

      • Reepekg says:

        Ah OK, thanks for clarifying this point. I just checked the one line statement in my brokerage account from the date the dividend got paid out which lists it as either “qualified” or “ordinary.”

        Since this is the first year I’ve saved enough income to invest in a taxable brokerage account, I’ll look forward to that 2014 1099.

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  17. Laura says:

    Can you tell me if by “no taxes” you mean no income taxes? Or do you mean no income or FICA? I’ve googled and googled and can’t find anything to suggest at what point you start paying FICA. I’ve been assuming you start paying FICA at dollar one. Thanks for the help!

    • Go Curry Cracker says:

      Hi Laura

      You pay FICA at dollar 1 of earned income. Social Security and Medicare taxes are only on money you make from a job, and are not applied to dividends, capital gains, etc

      Since we are funemployed, we pay no FICA or income taxes of any kind

      If you have a job, there is no way to eliminate all taxes

      Hope this helps


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  19. Elizabeth says:

    This is an awesome, awesome post! Thanks so much for easily clarifying this. Listened to the podcast with you & MadFientist last week. Love the idea of continually upping your cost basis under the allowable threshold to avoid paying tax on capital gains. I never thought of that and was trying to figure out how to account for the income from our taxable investment account in FI. Thanks for putting this together.

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  22. Abby Johnson says:

    Hi. I found your blog from lifehacker and am loving it! I am 34 years old, work for the state of Illinois, and just became debt free. I have an extra $5,000 each month to invest. I know nothing about investing or making taxes work for me. I can tell this article was well written but starting with zero knowledge it is over my head. Is there a book you could recommend? Maybe another article you have written? Should I go to a financial advisor? Any help you can give me would be greatly appreciated! Thank you.

    • Go Curry Cracker says:

      Hi Abby, welcome. Congratulations, debt free and $5k a month to invest at age 34 is a great place to be. The advice MarkT gave is spot on. Be sure to read through Jim Collins’ stock series and understand what you are getting in to, and then open a Vanguard account and get started

      All the best


  23. MarkT says:

    Abby – Simple answer, and find a low fee index fund. More in depth answer, read jlcollinsnh posts on this

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  25. SA Mei says:

    Hi Jeremy, I just started reading your blog. Great articles and analyses. I am an accounting professional and live in San Jose, CA. I can totally relate to your blog. Do you mind explaining how you arrived at the amount of $70,700 tax free investment income? Also wouldn’t the investment income be subject to long term capital gain tax of 15%? Thanks very much for your time!

    • Laura says:

      I had the same questions.

      • Go Curry Cracker says:

        The $70,700 number comes from the Qualified Dividends and Capital Gains Tax Worksheet of the 2012 IRA 1040 form for a married couple filing jointly.

        The tax rate for Long Term Capital Gains and Qualified Dividends is based on your marginal rate. If your marginal rate is 25% or higher, then that rate is 15%. If your marginal rate is 10% or 15%, then it is ZERO.

        To help make this more clear, you can try the TurboTax TaxCaster

        Try entering different values of income from qualified dividends and long term gains and see at what levels you would need to start paying tax

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  27. gogig says:

    This blows my mind. I am not financially ready yet to take advantage of these tips, but I am very grateful to know what to study up on when I get there. Thanks, super cool post!

    • Go Curry Cracker says:

      One thing you can take away now is to take advantage of your tax-deferred accounts to minimize current taxes.

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  40. Ricky says:

    I think your article would of been more complete had you mentioned the fact that you live in Washington where there is no State income tax at all. Most states (43 of them) levy tax on dividends and capital gains at the normal rate income tax rate of 6-10%.

    • Go Curry Cracker says:

      You are probably right. Being 100% complete might require a 200 page book though

      Technically I’m a resident of Washington State, but I haven’t been there in over a year. I’m not sure if that means I can say I live there

      One great thing about Washington and other states that have no income tax, is that residence isn’t an exclusive club. Anybody can join

      Thanks Ricky

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  43. Dom says:

    Love the blog! I was wondering if you have a good resource (book or online) to really dive deep and learn capital gains/loss harvesting. Thanks!

  44. Warren Vann says:

    OK, so I’ve used these methods and shared them with others, especially students,
    who have used them to avoid taxes and loans. If Grandma gave you stock for school
    and you harvest the gains with little earned income, you are using what I call the
    “Poor Little Rich Kid” tax dodge. I’m sure every congressman’s kids use capital gains
    to pay for school and don’t pay tax on the first $45K ($70K for a couple). But, now, say
    you have stocks and are self-employed. You open a 401(k) (self-employed) account
    and you use proceeds from sale of the stocks to live on and you plow as much of your
    earnings as possible into the 401(k), thereby deferring most of your income tax and paying
    no tax on the capital gains. Of course, you do pay FICA, but you want to do that to insure
    you get the best annuity one can buy, Social Security, when you retire. So, you pay little or
    no tax now, while working, but, if you retire early and live on the 401(k), you pay 10-15%
    tax on those funds. Have you shot yourself in the foot by moving out of capital gains and
    into the 401(k), remembering that you paid no tax while converting taxed stocks to tax-
    deferred accounts? I could go through the numbers in Turbo-tax, but its easier if someone
    already thought through this.

    • Go Curry Cracker says:

      Hi Warren

      I’m not sure I follow everything, but 3 things stand out

      1) A 401k is a powerful tool, and the self-employed version even more so. One needs to be careful not to save too much in a 401k / Traditional IRA though, less one get stuck with big RMD tax bills later

      2) Social Security isn’t that great of an annuity. The overall ROI is pretty horrible in fact

      If we were to buy an equivalent annuity in the open market, the costs would be substantially lower than what we effectively pay through the SS system

      3) Those nice civil servants in DC make a pretty good income, so are probably not able to pay zero tax on capital gains. Still, it is good work if you can get it



      • Warren Vann says:

        On your third comment, yes, the servants make money, but their
        kids in college don’t, so the servants build an account in the kids’
        names and the kids live well tax-free for their college careers. Remember Anne Romney saying things were so bad, they had to
        sell stock to make ends meet when Mitt was in college? What a
        joke. What I am saying is that the rules are unfair for a reason
        and guess who writes them.

  45. Chris says:

    You’ve avoided this so far, but I think I’m going to make the ‘attack post’ you’ve been waiting for, but I’m going to try to be respectful.

    First, you claim that your usage of public resources and services is disproportionate to your usage of them. How do you calculate this? I do not believe it is possible to do so. So you walk and bike a lot, great. It’s a great health benefit and has no gas costs. Lots of people in large cities do the same thing (mostly out of necessity, but the difference is unimportant) and they still pay taxes that support roads. Are they the average taxpayer in terms of road usage? I have no idea. Maybe.

    Second, let’s pretend you do know that your usage is lower (far lower) than average. If all of those people (including yourself) never paid any taxes toward roads, would roads still be financially viable or sustainable? I’m not saying the answer is no, but it IS a possibility. I am in fact under the (admittedly non-evidence-based) impression that public services like roads can only exist because the vast majority pay taxes to support them. If the number of FI’ers grew large enough to invalidate that assumption, your roads would eventually fill with potholes and the car you drive (I assume later in life you will need a car due to aging) will suffer more maintenance costs and you’ll directly feel the impact in both your driving comfort and your dwindling wallet.

    Third, what data do you have to support the claim that “other organizations [help] as well, more so even”? Trying to qualify a single organization’s public benefit is a crapshoot, even with statistics from sites like Charity Navigator. Sure, you know how much of your donated money is going toward the cause, but that isn’t the same as knowing how much good they’re doing. How do you compare the public good of supporting the installation of a well in Kenya to handing out coats to the homeless in Wisconsin? You can’t. Trying to qualify a larger number of charitable organizations is only going to be harder.

    By the way, today is my first time reading your blog. I found my way here from MMM and then jlcollins. It seems to be a nice one; you’re obviously a smart person and have done well for yourself. Thanks for writing it.

    • Go Curry Cracker says:

      Hi Chris

      Thanks for stopping by and kicking the tires. Great questions! (and very respectful too, thank you)

      I haven’t calculated any of these things, but your questions made me curious so I did a little thinking

      re: charities. Yes, hard to compare impact of public good vs. dollar spent, and I won’t. Certainly this challenge applies to both government and charities. Some of it is subjective… would you feel better spending $1 on coats or wells? Some of it is objective… what percentage of total funds received is used for direct benefit of the intended recipients?

      The quagmire gets deeper when we start to consider that in many cases government and charity organizations work together.

      In the end though, my statement was largely based on the fact that charities do things that government will not. For example, the Bill and Melinda Gates Foundation focus on family planning in developing countries. Avoid the politics and just focus on the goal is an advantage NGOs have and use

      re: roads. Contrary to your assumption, our intent is to never own a vehicle. Old and decrepit? We will live much as we did in the prime of our working years, in a walkable community. In addition to being a great way to live, it will also avoid harm to others that we may cause while driving as our eye sight, reaction time, and awareness decline

      Our personal impact on the roadways can be measured, and includes both direct and indirect impact. Direct impact from use of roads, and indirect impact from use of roads by goods and services that we use.

      If we drive a car 100 miles per year, ride a bicycle 1000 miles per year, and primarily purchase local produce at farmers markets, I think we could agree that our impact is less than average.

      One of my favorite posts on this topic does a great job of estimating road impact of biking vs driving vs large transport vehicles

      In short: If road damage from riding 1 mile on a bicycle is 1, then the road damage from driving a Prius 1 mile is 38000. I can ride a lifetime on a bike and do less damage than 1 mile of driving a Prius (The impact of an 18-wheeler is 252,000, ~6000x that of the Prius.)

      It would be great if each vehicle paid a use fee based on its true cost. They don’t. But when we do drive (100 miles per year) we pay tax on the fuel we use. When we take taxis, we indirectly pay the same

      Now the federal tax on gasoline is 18.4 cents per gallon and the average fuel economy of the car fleet in the US is 21.4 mpg.
      This translates to less than $0.01 per mile. I’ve already paid a lifetime worth of user fees for myself and thousands of others. Keep the change

      As for “what if everybody did it”, these thought exercises are seldom useful. But let me ask this: What would be a better world, a world where a large number of people sought FI and rode bikes, or the world of today where many people work to consume and drive? Let’s build a world where fewer roads are necessary because people walk, bike, and take public transit, where city centers are built around people and not cars. Amen

      Thanks Chris. Hopefully you will find our little blog of interest and share more of your thoughts and questions. Cheers to MMM and Jim Collins for making the world a better place


      • chih-lin hsieh says:

        Hi Jeremy,

        I enjoyed reading your tax post and some of these discussions. I am a bit puzzled about the road damage estimates in your post. If the road damage factor of a 18-wheeler is 252,000 and of a Prius is 38,000, how can that be a 6000x factor? Did you happen to miss some 0s for the 18-wheeler?

        Thanks for your interesting and detailed early retirement posting. Willing to live a very simple life is a remarkable character. Best wishes to you and your family.


      • Stoldney says:

        I found your blog a few months ago, and I stumbled on this today. Forgive me, but you strike me as being incredibly narcissistic and myopic on this. You are focusing on the costs of roads and ignoring so very much. Taxes pay for so many things. Like fire services. Or police services. Or the courts. Or funding for technology I am positive you use (internet, GPS, cellular radio, to name just a few). Social safety programs that you might need one day. Education. Military protection. Environmental protection programs. Roads that efficiently ship the goods you use (even though you may not use them directly yourself). And so on. No man is an island!

        You are wanting to have your cake and eat it too. Enjoy the fruits of civilization without sharing in the costs of them.

        • Go Curry Cracker says:

          You are probably right.

          What would you advise I do?

        • Takalak says:

          I would argue that folks who minimize taxes can only do so by paying a lot of taxes during their accumulation years. It’s almost like you have front loaded taxes to the earlier part of your life. Often times decreased spending on homes and other tax deductible items may lead one to spend more on taxes in the early years. Also, I believe that the tax system is set up this way so that taxes aren’t a large burden to retirees, regardless of their age.

        • Jacob says:

          I hate to dredge up old comments on an old thread, but I have just recently stumbled upon your blog and felt inclined to leave a comment.

          Coming from someone who is active in local politics, I can assure the readers, at least in my area, a resident of Texas (another state with no state income tax), items like Fire Service, Police Service, court systems (which charge users “court costs” every time someone uses the system, hardly a tax funded system), education, and environmental protection programs are all funded through local sales/use and ad-valorem/property taxes. Even the federal contributions to these systems could be minimized if we kept our national taxing low and focused on budgeting/taxing/spending locally and state based, where our representatives are more accountable than at the federal level (i.e. If the federal government wasn’t wasting money on a Department of Education, there would be more money for local taxing authorities, the the state or county for instance, to tax. The overall amount of tax paid wouldn’t change, but why pay the federal government to pay a bureaucrat to give grants to local jurisdictions when the local jurisdiction could just receive that directly?).

          As for the rest of the listed items that are specifically done only on a federal level, like military protection and social safety programs, I agree that these items need to be paid for but why should it be the authors responsibility? If we follow the doctrine of Corporate Personhood, corporations pay income taxes and pass this cost on to their consumer, so as the consumer is spending money aren’t they also indirectly paying those taxes already when following the system outlined in the original article? Not that all consumerism is corporate-driven, but corporations are a very large cog in the machine.

          Thanks for your time and I look forward to bookmarking this blog to continue educating myself in this subject.

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  54. C says:

    This was a very informative post. I’m afraid I don’t have quite what it takes to navigate taxes and all that yet though. I’m just starting to tinker with mutual funds and all that fun stuff. I hope to be financially independent by 40, which is fifteen years from now. I notice this depends on being married though. As a mgtow I have every intention to avoid marriage as best I can, though I’m not opposed to a religious/nongovernment wedding. How does this work as a single male? It seems we’re targeted particularly viciously by the taxes, especially after aca which seems to intentionally go after single men. Is it even possible?

    • Go Curry Cracker says:

      Hi C

      There is no dependence on marriage. You can divide all of the numbers above by 2 and arrive at the equivalent tax levels for a single person. And as a single person you could spend half as much (or depending on who you ask, less than half.) Seems pretty equal

      I suppose everybody thinks the ACA is unfair to someone. People without kids think it is unfair they “have to pay for people with kids.” The wealthy think it unfair they “have to pay for the poor.” The people without pre-existing conditions think it unfair “they have to pay for the sick.”

      For a single male, most of what I’ve read suggests women pay more for health care benefits than men, and more for services. In any case, I don’t find that way of thinking to have any benefit

      At the end of the day, health insurance is not that expensive. As a percentage of budget for somebody that can save enough to retire in 15 years in particular. I’d just pay the bill, enjoy the health coverage, and move forward with my saving and investing plan. That other stuff is outside your sphere of control

      Good luck!


      • Brandon says:

        Thanks for the extremely informative post. I do have to disagree about ACA. I’ve seen my premiums rise from 1400 a year to over 4000/year for a worse high deductible/HSA plan. To get an equivalent plan to what I had 5 years ago, I would have paid 600+/month for this year’s insurance. I have to go through the exchanges since I am a contract employee (not complaining, as I am well compensated for that fact. Just illustrating)

        • Go Curry Cracker says:

          We agree, so no need to disagree. If you earn more than 4X the FPL (so no subsidies) your insurance will cost more than a high deductible plan of yesteryear.

  55. Wendella says:

    Thanks for this story. I find this strategy really fascinating, and would love to be in a position where we could implement it say 10 years prior to drawing money from retirement accounts. But I have questions about what happens, in theory, after one reaches the age where one starts collecting social security. How would drawing social security impact your future tax implications after you’d implemented this strategy? To throw out some theoretical numbers, let’s say at age 62 a husband and wife start taking:

    10,000 a year in long term investment gains from non-retirement accounts
    16,000 a year in long term investment gains from Roth IRA accounts
    12,000 a year in long term investment gains from 401K or regular IRA accounts
    20,000 a year from Social Security

    What would be taxed at that point? How might you prepare to minimize taxes once you start collecting social security?

    • Go Curry Cracker says:

      Hi Wendella

      This is a fairly complex situation, and as such hard to answer in a comment.

      I’ve touched on this subject here and here

      You can get a rough idea of tax load by looking at the graphs in this post

      But in general, your Roth withdrawals are tax free, income for MFJ is below ~$90k so dividends and cap gains from the non-retirement accounts are tax free. The 401k withdrawal will be taxed as regular income, and the SS will be mostly untaxed as well since total income is below the SS taxation threshold of $32k (for 2014) (tax formula uses 50% of SS for threshold test)

      I have a post in the pipeline about Social Security that will go a little deeper. I’ll also do a Reader Financial Review where SS plays a role when I have a good candidate

      In the mean time, hopefully this helps



      • Wendella says:

        Thanks so much for the reply. That’s very clear, and again, thanks for posting about the strategy. The cynic in me assumes the tax law will change before I’m in a position to implement this, but I’ll keep my fingers crossed! 🙂

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  59. Joshua C says:


    Great blog. The stuff you and Mad Fientist are writing about is blowing my mind. I know for 2015 for MJF income is $20,400, correct? But, where are you finding the amount of long term capital gains and dividends that are tax free? For 2012 you said $70,700. Where are you getting that number from?

    • Go Curry Cracker says:

      Thanks Joshua

      That number comes from either the Schedule D Qualified Dividends and Capital Gains worksheet, or you can pull it from the tax tables as the upper edge of the 15% tax bracket

  60. des999 says:

    I am able to max out my 401k and plan to do the SEPP withdraw method, as I won’t have enough after tax savings to live on while I convert to a Roth. This method works great if you have 200+ in after tax accounts, but that won’t be me.

    My plan is to have about 550k in 401k by 46, sepp payments will be about 19k until 59.5, also I hope to have around 130k in roth that I will use for the 13 years until I turn 59.5.

    If the calculator I used is correct, using sepp, assuming I still get ~7% my balance will actually grow to around 900k by 59.5, so I’ll be in better shape then. 🙂

  61. Jay says:

    Thanks for the nice article. What about someone who makes $300,000 a year?

  62. TJ says:

    How do you expect to never have earned income again if you generate revenue from this blog?

    • Go Curry Cracker says:

      Last year the blog made about $2,000 (maybe $5/hour?), and I had to pay some self-employment tax on that income. Income tax was still $0. See my 2014 tax return for details

      That’s what happens when you violate Rule #1

      • Steve says:

        Excellent article and congrats on the early exit from the work world. My wife and I did the same thing in our early 40’s and I was beginning to think we were the only pink elephants out there that think like you in regards to finances. 😉 The freedom is priceless and 5 years on, it’s by far the best decision we’ve made in our life.

        Question: While I hear you on the income end of things, I’m guessing based on your $2000 income that you got the benefit of the EIC as a result?

        • Go Curry Cracker says:

          Awesome, congratulations Steve. It is hard being a pink elephant in a workaholic world

          We don’t benefit from the EIC because investment income is too high. But we will receive the Child Tax Credit

  63. Perry E says:

    So if I expect to have $65k a year income from a pension, then when I add in my SS benefits and tax deferred withdrawals, which puts me up over $120K/yr, I will always be paying taxes at the nominal 25% then, correct?

    • Go Curry Cracker says:

      With relatively high pension and SS income, you will always pay tax. Each dollar out of the tax deferred accounts will be taxed at the marginal rate

  64. Nathan says:

    Help, I’m confused. The way I read the blog it’s saying that the first $19,000 you make is tax free. I’m assuming this is referring to capital gains, since the first tax bracket for earned income is 10%, not 0. Also, distributions from an IRA in retirement count as income and therefore are subject to income tax, they don’t count as LT CG. Please point out what I’m missing. I’m trying to figure out whether to invest in an IRA or Roth IRA. Last year’s gross income was 54k, but thanks to interest deductions, actual tax rate was more like 8%. Any advice? I probably won’t be in the next tax bracket for quite a while, sadly

  65. Selena says:

    Thank you very much for sharing all of this information. I am a college teacher and have a question for you. Earlier, you mentioned selling your house. Why didn’t you considering keeping it to sell it at high point (meaning, keeping your house as an investment)? Also, didn’t you find it advantageous to keep the house and be able to deduct the interests? I wonder what you thoughts are about renting vs. buying a house for someone who is in the middle low income bracket. Thanks for any insights and I am looking forward to reading your response!

  66. I started working last year, I live in Puerto Rico and I’m an Occupational Therapist. I don’t receive any retirement benefits because I work by professional services and I want to start making smart decisions from the beginning. The problem is, I don’t understand half of the terminology about finances and don’t know how to start. What articles or books do you recommend for a complete beginner?

  67. Drew says:

    You mention you’re a WA state resident, but you’re living in Taiwan. Do you own property in WA? Rent a place?

    More to the point… If I plan on living an itinerant lifestyle such as yours, what’s the cheapest way to establish residency in a low-cost state?

    • Go Curry Cracker says:

      Hi Drew

      Move to a no-tax State, get a drivers license and register to vote, open a bank account, live there for 6 months or whatever their legal requirement is. Cut all ties to other States, no bank accounts, no property

      Your legal residence is now in a no-tax State and you are free to move about the world

      There may be easier ways, but I haven’t researched it in depth

      Good luck


      • How do you maintain residency once you have it and what address do you use (not asking for your actual address!)? We love the idea of not having a place to pay rent on or to own, but when thinking about filing taxes and utilizing the WA exchange for healthcare, we are continually at a loss for how to manage this without having an actual residence anywhere. What do you do for this? Thanks.

        • Go Curry Cracker says:

          Often legal residence remains in place until you establish a new residence somewhere. Examples exist where aggressive states like CA and NY have tried (successfully?) to tax former residents who have moved on, on the premise they didn’t establish a new residence elsewhere.

          We use a friend’s house in Seattle as our address. He processes our (very limited) mail, but we will probably transition to Traveling Mailbox this year.

          For using the WA exchange, I don’t think this has much value unless you are actually in WA. All policies we have seen have limited coverage outside WA (or outside network even.)

          • Excellent! Thanks. I’ll check out your articles on ACA. Figuring out healthcare for our little family is the next big piece of the puzzle as we set off traveling again for an indefinite amount of time. Cheers.

  68. Brian says:

    Forgive me if I’m kind of confused by this post.

    You say to choose leisure over labor, i.e., do not “work” and live off investment capital gains and dividends. Is this post about a retirement strategy or something you can do right now? I don’t see how I can fund the investments AND live off the gains (which are not guaranteed).

    If I missed something, could you clarify what step 0 would be? Thanks!

    • Go Curry Cracker says:

      If you work, you pay tax. There is no way around that

      Step 0 – eliminate debt
      Step 1 – accumulate capital
      Step 2 – follow the plan outlined in this post

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  70. av says:

    What about traditional IRA contributions… It’s not 2012 anymore, but no matter… Based on your 2012 suggestions of $19,500 in income, and $70,700 in cap gains/divs… shouldn’t we add another $5,500 in income that you can contribute to a traditional IRA that’s offset on line 32? Take that number from $19,500 to ~$25,000 in income…

  71. Nate says:

    Great site.

    Have you heard or considered combining tax free investment income with tax free gains on primary residence sales? I am a builder and am consider shifting part of my home equity and portfolio to buying property, making improvements and selling every two years to maximize tax free return.

    Just a thought…

    • Go Curry Cracker says:

      Since you have some expertise in this area, maybe you can make this work. The tax free gain on your primary residence is a nice bonus,

  72. jkenny says:

    Rereading of few of your articles to try to learn this stuff, followed your suggested link to Mad Fientist’s article, and then his link to Taxcaster to play with some scenarios. True enough, with 100% income from capital gains under a certain amount I pay no tax. BUT, as I added wage income at first my tax stayed at zero, then I started getting a refund which peaked at $2000 for wage earnings something above $30,000. The refund was from the tax credit you get if you have two kids under 16 and earn less than a certain amount, but this credit apparently is only triggered if you have some income from working. No credit for solely capital gains income. So….am I really better off tax-wise to work some to trigger that credit or am I missing something here?

    • Go Curry Cracker says:

      There are (at least) two credits that can be claimed for families with children, the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC)

      The CTC can be claimed as long as you have tax due, which we will ensure via larger Roth IRA conversions. The EITC is aptly named, as it only applies if you have earned income. Any investment income quickly makes you ineligible for the EITC though, so there is a balance. I haven’t studied this in depth, because our dividend income disqualifies us

      There are some advantages to having a small amount of earned income. FICA tax will be due on all of it, but income tax could still be at 0% and each person is eligible to contribute up to $5500 to a Roth IRA in 2014. I did this in 2014 with the < $2k in blog income There is some discussion of the CTC and EITC in the comments section of this post:

  73. tonystrauss says:

    very interesting post – it wasn’t exactly clear how this worked, and being a CPA, I had to be a little skeptical. However, I researched this and was not aware of the phase in on the taxation of qualified dividend income. So if I understand this correctly, you can have earned income up to the amount of your Standard Deduction and Personal exemption, which then wipes out the taxes on the ordinary income. The phase in on the qualified dividend income allows you to collect a healthy income of dividends – for 2015 $74,900, without paying taxes!! This is probably what I clear AFTER paying taxes – with much more effort! Now the kicker – you probably need around $1.5M in dividend paying stocks (yielding around 3.5%) to provide 50k +/- in qualified dividends. (still something to shoot for)

  74. Reese says:

    Found this link from MMM and am hoping to follow some of these pointers, however I had a few questions. Do the new tax rules sort of put this plan on the rocks? Per 2015 laws $19.5k falls in the 15% bracket so that transfer would be taxed. I guess you could transfer less and fall into the 10% bracket but it doesn’t look like there is a 0% option anymore. Also, wouldn’t you take a penalty for early withdrawal from the Roth? Thanks for the great article. I still think the advice holds pretty true, just maybe the numbers have changed.

    • Go Curry Cracker says:

      Hi Reese

      There is always a 0% option due to the Standard Deduction and Personal Exemptions. All of these methods work today perfectly well

      There is no early withdrawal from an IRA. There is a Conversion, which has no penalty

      The numbers have changed, but only for inflation. Everything is functionally the same

      • Reese says:

        Ok, do I have this right? The conversion is where you move the $$$ from the traditional to the roth paying “income” taxes for the move. Tax rate is dependent on how much you move. Idea would be to move only what is needed so that your “income” stays in the lowest bracket possible. Once the money is in the roth with taxes paid, whatever they may be, now it can be withdrawn for use.

        • Go Curry Cracker says:

          Yes, although there is a 5 year waiting period for accessing the conversion funds. Access to any earnings is still restricted until Age 59.5

  75. morgne says:

    I read your “Traditional vs Roth” post with a lot of interest. I’m really appreciating the way you think!

    This post is no different and I want to make sure I understand. I’m a sole-proprietor and am able to have a Solo 401k that I can contribute over 30,000 per year to. However, I plan on having a retirement income of less than 50,000 (tax adjusted of course). Rather than put all 30,000 in a tax deferred account, would it make sense to put 15,000 in the deferred 401k (to create the first 20,000 or so in income which would be 0% interest because of deductions for spouse and self) and the remaining 15,000 in an account that would generate capital gains (that would then be in the zero tax bracket), thus giving me zero taxes to be paid at that point?

    I understand I’d have to pay current taxes on the capital gains account but my bracket is only 15 at this point so it seems to make sense to pay 15% on half now, only 2250, then be tax free 20 years from now.

    Or have I over thought this whole process?

    • Go Curry Cracker says:

      You may do better putting everything in the Solo 401k

      As you say, on withdrawal the first 20k is taxed at 0%, but the next 20k is taxed at 10%. Why pay 15% now, when you can pay 10% or less later?

      If your marginal rate drops below 15% due to Solo 401k contributions, then your idea of contributing some funds to a Brokerage account is sound (pay 10% tax now instead of 15% tax later.) If you live in a State that taxes dividends though, you may still do better with a Roth than with the brokerage account. Or maybe you end up with both

  76. Patrick says:

    What do you think about taking SEPP pre-59 on your 401k vs rolling it into a Roth?

    • Go Curry Cracker says:

      For people 49 years old and older, the SEPP path probably works well if you have limited savings outside of a tax deferred account

      If you are much younger then that, then the SEPP is quite restrictive and could even be punitive if income situation changes (decide to go back to work, a hobby turns into successful business, etc…)

      But then again, if you retire much younger then 49 or so you should have a healthy savings outside tax deferred accounts, since annual contribution limits would force saving in taxable accounts as well

  77. Bob says:

    Jeremy, Love your ideas, thanks for outlining them here in your blog.

    I feel like I’m pretty well versed in personal finance but I definitely still learned some interesting strategies — one example being capital gain harvesting. Had always done tax-loss harvesting; will need to review the options for future tax years.

    One thing that you mentioned above in your original article:

    “Once income and spending exceeds this level, taxes must be paid. Unless…”

    You go on to explain the ~$20K ordinary income exemption/deduction and the ~$70K capital gains and qualified dividends 0% bracket. I want to add just a slight twist to make this sound even better, although it will be more theoretical than practical….

    While your income needs to stay below these levels, if you choose to exceed them with your spending you can still pay zero federal income tax. This is because when you sell appreciated assets (stocks, mutual funds, etc.) you are only taxed on the gain but you have access to the basis tax-free.

    So for example your annual spending could look like this:

    ~$20K — Ordinary income (RMA, etc.)
    ~$40K — Qualified Dividends outside of IRA/401(k)
    ~$30K — Capital Gain from selling mutual fund shares
    ~$20K — Basis on above mutual fund shares (as an example)

    ~$110K — Total available to spend

    This is of course theoretical because most people that have amassed enough money to retire early wouldn’t spend this much annually. But it’s nice to know it’s available if needed.

    I’m sure that you already know this and perhaps you omitted it to prevent confusion. But if anyone has the objection that they would follow your advice but want to spend more than ~$90K/year in retirement, this would provide a method to allow that and still pay no federal income tax.


    • Go Curry Cracker says:

      Hey Bob. Yup, any basis is tax free. And if you practice cap gain harvesting for long enough, your basis will be high.

      Roth IRA withdrawals would also be tax free (Contributions only before Age 59.5)

  78. Nej says:

    Hi there, If my fiancé gets a pension of 50k a year, does this pretty much throw all these strategies out the door once we are married? I am almost at the point of financial independence, but with his pension we would always be at higher income levels. So how much harvesting of dividends and capital gains could be done tax free?

    • Go Curry Cracker says:

      The 50k pension would be earned income, and fill up your 0% & 10% tax brackets (and part of 15%.) You would still have 40k plus of 15% tax bracket that would provide 0% tax on Qualified Dividends and Long Term Capital Gains

  79. Nej says:

    Also, on a related point:

    If one spends all their time accumulating funds in a 401k, then how do you take advantage of the 72k of capital gains at 0%? All the reading seems to infer that you have a big nest egg in a taxable brokerage account. I am in a higher-income bracket now while accumulating so look for any deferred tax strategies now to lower my tax rate (sounds like you agree with that strategy per prior post). But that means nearly all of the assets are in 401k/403b etc over the time.

    Let’s say I retire tomorrow. Using your strategy of converting a small amount per year to a ROTH (like 10k) would still not cover my annual expenses (let’s say 70k). How do you manage to get the extra money into accounts that would not charge tax for capital gains, dividends, or withdrawal? Should I start diverting some of the potential monies that could be directed to tax-deferred accounts into taxable accounts instead (i.e. forgoing the tax break now)? Or does your strategy assume that the high rate of savings (like 75%) means that there will be extra amount of cash that can be directed to taxable brokerage accounts? In my scenario, I contribute the max that I can, but it nearly all goes to tax deferred:

    – a 401k at work (17,500 plus 8,750 matching)
    – plus a solo401k for additional self-employment income (about 20,000)
    – and a ROTH (5,500). I do this via traditional IRA (using after tax dollars, since am over income limits) and convert it to a ROTH immediately.

    Thanks for tips. This has been illuminating. I will probably work for more years, because I love my job and prefer more cushion, but want to make sure I am using good strategies. I’ve always lived on less than 1/2 my income and its way better than fussing over market returns!

    • Go Curry Cracker says:

      An individual is limited to 18k of 401k contribution in 2015, so the combined employee contributions to work 401k and solo 401k is 18k (not twice that, as implied in your question.)

      If a household is saving 75% of income, in most cases they will inevitably end up with funds in a brokerage account due to the contribution limits.

      In deciding whether to save pre or post tax today, compare the marginal rate you expect to pay today vs the future. If they are the same, pre and post tax are basically equivalent.

  80. David says:

    What about Primary Residence?.

    I continually read, literally every website I go to including the IRS website..
    ” The Long Term Capital Gains Tax Rate when selling your home is determined by the tax bracket you are in based on “Ordinary Income”.
    So, if you are in the 10%- 15% tax bracket your Long Term Rate will be 0%”

    There are only so many ways you can interpret that. I am selling my Primary Residence of 25 years in 2016 and I will have very little, if any, ordinary income placing me in the 10% tax bracket.

    Is my LT Gains Rate really 0%?

    • Go Curry Cracker says:

      Read through IRS publication 523. If it is your primary residence, then gains up to $250k single / $500k married are tax free. Ordinary income is not a factor.

  81. Anthony says:

    Hi GCC,

    Love your work, and we are actively working toward many of the strategies you espouse. We target saving 65% of our post-tax income this year (and giving away 10% on top of that!), with a time horizon of ~5 years remaining to be able to comfortably cover living expenses via dividends & a small annual % withdrawal from our after-tax accounts.

    Question I’m trying to figure out – what about the impact of State taxes on this sort of income? Looking at states like Oregon and Idaho, I wonder (worry) whether there could be a 4-8% tax on income, even if it is highly efficient dividend and long-term capital gains. We live in TX now (no state tax), but for many lifestyle enjoyment reasons have our future eye toward the northwest.

    So – if we (MFJ) stay just below the Fed Tax thresholds (i.e. accomplish 0% tax owed), would we be subject to the State Tax levies as well? I don’t want the tax tail to wag the dog, but I do want to be prepared as we head toward executing our dreams.

    Thank you for all you do to compile information & challenge the norm!

    • Go Curry Cracker says:

      Yes. If you live in a State with an income tax, you will be required to pay taxes.

      Washington State shares a border with both Oregon and Idaho and is Income Tax free.

  82. Suz says:

    Hi there! Thanks for this interesting blog and article. You provided a lot of great advice, and it’s wonderful to see you making your dreams come true!

    There were a few posts that disagreed with the stance on taxes, but one person commented that you “front-loaded” your taxes during your working years and, thus, have paid your dues (so to speak). I am curious about your comments on health insurance, though, which relates a bit to taxes. This is meant to be very respectful — just trying to understand because I don’t think I agree. You wrote “One item to be careful of is new with the Affordable Care Act. It is possible for an early retiree to get massive health insurance subsidies…At our $36k per year spending level, we qualify for several thousand dollars of assistance”. Folks who are still working and paying taxes are the ones contributing to the ACA and, thus, to such assistance programs. Even if you contributed to taxes early on in your working career, you have now brought another little being into the world — I’m sure a cute little guy at that — but one who nonetheless requires healthcare. Is it really fair to be taking assistance from those who do pay taxes while no longer contributing yourself? I understand that you feel you don’t use services (e.g. roads, though some pointed out that taxes go to plenty of other services), but you are using US-based healthcare and taking taxpayer-funded assistance. That assistance is really for people who can’t afford healthcare. Your spending level is well above poverty level in the US. Again, I am just curious and ask this with respect, but how do you justify using this advantage that taxpayers fund?

    Thanks again for the really insightful and thought-provoking blog! Best wishes on your journey!

    • Go Curry Cracker says:

      Hi Suz,

      I’ll share some thoughts, and you may still not agree, but first I need to correct a few false assumptions:

      > you are using US-based healthcare
      This is not correct. We haven’t been in the US for more than 3 years.

      > your child nonetheless requires healthcare
      We’ve paid cash for all health needs to date. It is interesting how health systems outside the US that offer up front transparent pricing are reasonably affordable. The US system is broken.

      > That assistance is really for people who can’t afford healthcare.
      This is not correct. The ACA is not an assistance program, per se. Medicaid serves that purpose. The ACA is intended to subsidize everyone with incomes up to 4x the poverty level. A family of 3, with 401k & IRA contributions, could earn over $100k/year and still receive subsidies.

      > Folks who are still working and paying taxes are the ones contributing to the ACA
      This is not correct. The ACA is funded by taxes on the healthcare industry, reductions in Medicare payments to hospitals, and taxes on people making $250k+/year. The majority will receive subsidies even while working (~85% of households purchasing insurance on an exchange in 2015.)

      With that as background, let’s assume that we were in the US. What would we do?

      We would buy health insurance on the exchange, as legally required, and also because not having health insurance in the US would be irresponsible. I would prefer to purchase an HDHP, but the ACA requires we purchase more coverage than we need.

      By purchasing an ACA policy we would receive a subsidy, per the letter and spirit of the law.

      I would also vote for politicians with goals of improving the US system (price transparency, group negotiation of pharmaceuticals, insurance competition across State lines, etc…)

      > Is it really fair?

      What alternative are you proposing?

      Should we intentionally ignore tax deductions that we are legally entitled to? After taking steps to maximize tax burden, should we also send an extra check to the US Treasury? How big should that check be?

      At the same time, even though we have qualified for Social Security and Medicare at Age 65, should we refuse these services when the time comes? Are there any other government services that we should refuse?

      Will you do the same?



      • Stoldney says:

        I don’t fully agree with your stance on taxes still, but I can respect where you are coming from. Regarding healthcare costs here (US) I fully agree with you that our pricing is beyond broken. However, you mentioned interstate insurance sales and I’m curious as to why you support that? From what I have seen I think that would be a bad policy as it would give a huge incentive for health insurers to relocate to a small rural state and sell those low cost plans (for the insurer) to other states with entirely different demographics and population pools. This podcast goes into it a fair amount, plus examining the few states that already allow it:

        Its the second topic, around 43:00 in.

        • Go Curry Cracker says:

          What happens today if you are diagnosed with a major illness, and the world’s leading expert for that illness is in another State? Most likely visiting this expert would be uncovered by your insurance, or best case be out of network with unlimited out of pocket.

          I want one policy that covers me anywhere.

          • Stoldney says:

            That scenario will not be fixed by interstate insurance buying because that is a problem with healthcare pricing, not healthcare insurance. That can only be fixed by reforming the pricing structure of healthcare, which IMO can only be addressed effectively at the Federal level. Personally, I am a huge fan of all payer rating for this purpose and I think it is politically feasible to do in the next 4-8 years.

  83. Mary says:

    Jeremy, I disappointed to read you statement above about taxes, and skimming through the comments, equally disappointed to read some of the comments.

    Don’t be apologetic. Taxes are theft. They are the major fulcrum of population control and how the politically connected stay in power. Paying taxes is certainly not being patriotic and to say so belies brainwashing. To the contrary, it is patriotic to reduce your taxes to as low as possible and zero is the most patriotic.

    On Obummercare, that is another control mechanism. The whole health insurance industry in the US is a disaster because of gov’t intervention. All the laws and regulations should be scrapped and we should all pay for our own medical bills either out of pocket or with our own health insurance. The only patriotic act in this case is to get outside the Obummercare system, which you have done. Good for you.

    Taxes and regulation are theft. Taxes and regulation are to control the masses and keep the powerful in power. Striving for freedom by avoiding these control measure is nothing to apologize for. Go Curry cracker.

    • Go Curry Cracker says:

      No worries, I’m OK with people being disappointed in me.

    • Dave says:

      Not trying to be a co-signer here, but I rarely run across anyone that agrees with my stance on taxes being theft. Got into an argument last night with a brainwashed individual about taxes. I don’t believe in marriage, but if you’re single, and around my age. I’m available. For single people like me, paying zero income tax is almost impossible because it’s only 10k/37k vs. 20/75k. Huge difference.

  84. Hokie09 says:


    Excellent information here. However, I have a few questions about saving:

    1) I make too much to contribute to ROTH, so I have to contribute to traditional IRA and recharcterize the contributions to ROTH, but I do not get the tax deferred benefit due to the low income restrictions. Would you recommend putting the money in a taxable brokerage account, or keep contributing the $5500/year to the traditional IRA and recharcterizing to the ROTH?

    2). What’s the right balance between tax-deferred, tax exempt, and taxable accounts? Do you recommend maxing out 401k/HSA first, then ROTH, and then taxable brokerage account? Also, I recall you recommending 3 months of expenses in cash. I currently have around 20 months, what should I do with these funds ($40k)?

    • Go Curry Cracker says:

      Hi Hokie09

      I only share what we do and why, so I wouldn’t think of anything I say as a recommendation. I don’t know the whole picture.

      You do benefit from the tax deferral in the Roth. Those funds grow tax free for life. You just don’t get a tax deduction today.

      I outline near the bottom of this post which order I would contribute to the different accounts. This was written with the idea of targeting early retirement, as we will have years of no earned income before typical retirement age.

      If your income limit is too high for direct Roth contributions, you are in a high marginal tax rate today. In retirement, your marginal rate would presumably be lower. Based on those assumptions, standard industry guidelines are to take the tax deductions available to you now and contribute to Traditional accounts.

      re: cash. We keep 3 months of cash because our dividends are on a quarterly schedule, and they are enough to pay our own bills. I explain why here.

      If you agree that 20 months is too much, then perhaps add them to your portfolio per your target asset allocation.



    • Dave says:

      Using the backdoor ROTH isn’t even an option for some. If you already have an existing IRA, then you’ll likely have to pay taxes on the conversion (or a portion) because the existing IRA balance is calculated in the mix. I have an existing IRA and just looked into doing this myself. I hate to say it, but leaving money in an existing 401k is better if you make too much but want to contribute to a ROTH using the backdoor method. I hate 401k’s because it’s not at arms reach and limited investments. Most of my nest egg is in a brokerage, but I was looking at ways to have tax free growth down the line.

  85. Keith says:

    Listening, for the second time, to y’all’s podcast with Paula Pant and J. Money. AWESOME!!!!! Congrats on y’all’s success, and thanks for the info on the tax strategies.

  86. PDS says:

    Great and inspiring post. Just a couple of points perhaps are not 100% clear.

    “Why not sell some extra stock, locking in that $34,700 gain, and immediately buy it back to raise our basis.” Did you mean ‘buy is back after 30 days’? If you do it immediately, then it would be a wash sale and you wouldn’t raise your basis.

    Regarding “the $17,000 for 401k contributions”, would you have to count that as cost of living, since you have to put this amount aside instead of spending it on the beach? In other words, you raise your deduction and pay no taxes on this amount, but you don’t get to spend it either, hence my reluctance to see it as part of your income every year.

  87. PDS says:

    I would love to hear from you how your retirement strategy would work for a non-US person, that invests pretty much like you (VT, VTI, etc.).

  88. SM says:

    Great information, and I love how you pulled all of this together.
    Have you, are you planning on sharing your spreadsheet you use to optimize taxes? It seems like it would get pretty tricky quickly and I am curious how you laid out your plan.

  89. Breisha says:

    Awesome….. Great advice.

  90. Leo says:

    Does the 70,700 rule for no capital gain tax still apply as of 2016?

    • Go Curry Cracker says:

      It is adjusted upward each year for inflation.

      For 2016, it is $75,300 plus $20,700 for standard deduction and 2 personal exemptions.
      This is for a married couple filing jointly. Divide by 2 for single filers.

  91. Robert says:

    Thank for this post!

    My understanding is you can only Harvest Capital Losses from a taxable account (so you cannot HCL from an IRA, Roth, 401k).

    With Harvesting Capital Gains, can you HCG with any account including IRA and 401k?

    You cannot HCG with a Roth because you don’t pay taxes on withdraws anyway, correct?

    Thank you!

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