It may sound too good to be true, but a retired couple could generate six-figures in income and pay no federal income taxes.

If you think this is only because of President Donald Trump’s new bill, think again — even under earlier tax rules, a couple could structure their retirement income to owe $0 in federal taxes.

The key lies in smart financial planning and a solid mix of income sources. Understanding how different types of income are taxed is essential to making this strategy work.

Social Security benefits aren’t taxed like ordinary income, and their taxability is determined using a “provisional income” calculation by the IRS.

For married couples filing jointly:

  • Benefits aren’t taxed if provisional income is less than $32,000.

  • Between $32,000 and $44,000, up to 50% is taxable.

  • Above $44,000, up to 85% can be taxed.

If Social Security is your only source of income, you likely wouldn’t owe taxes. Even with other income sources, you may avoid a tax liability depending on the type of income and how it affects your provisional income.

Income from long-term investments is taxed differently than regular employment income.

For example, if you hold shares of a domestic company for more than a year, qualified dividends are taxed at the same preferential tax rates as long-term capital gains, even though they aren’t technically considered capital gains.

For the 2025 tax year, single filers with up to $48,350 in taxable income and married couples filing jointly with up to $96,700 may pay 0% federal tax on their long-term capital gains and qualified dividends, according to the IRS.

Given that these thresholds are relatively high — and standard deductions reduce taxable income — a married couple could earn a substantial amount from long-term investments and still owe no capital gains taxes.

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To understand how a retired couple with a smart mix of income sources can pay no taxes on $100,000 in annual earnings, let’s take the example of John and Jane.

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In 2025, they receive $62,400 in combined Social Security benefits and $10,000 in qualified dividends. They also withdrew $11,600 from their IRA and sold stocks from their brokerage account worth $16,000 — $8,000 of which is a long-term capital gain.

Altogether, these sources generate $100,000 in total cash flow this year. However, after accounting for how provisional income is calculated and applying the standard deduction, their taxable income is just $17,580.

Not all of this is taxed at ordinary income rates. Because their taxable income falls well below the $96,700 threshold for married couples filing jointly, their qualified dividends and long-term capital gains are taxed at the 0% long-term capital gains rate.

This is how John and Jane have achieved a six-figure, tax-free lifestyle. However, this isn’t the full story for the couple.

To understand how John and Jane may have avoided federal income taxes in 2025, given their smart planning and clever mix of income sources, it’s important to note that, in some states, they might still owe local state taxes on their income.

Also, their strategy only works before age 73. After that, the IRS requires Required Minimum Distributions (RMDs) from their IRA accounts, which could push them into taxable income territory.

Your personal situation might differ from this hypothetical couple’s. If you file as a single individual, don’t have significant capital gains, or have other income sources, your ability to generate $100,000 tax-free could be limited.

Nevertheless, with smart planning — and perhaps some expert advice — you can minimize or even eliminate your taxes while maintaining a comfortable six-figure lifestyle in retirement.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.