How to pay 0% taxes (in retirement)

I just finished a book called, “The Power of Zero,” by David McKnight. I liked what it had to say and I want to share the highlights here. 

Disclaimer: I am not a CPA, nor is David McKnight. I am not liable for anything.

There are three “buckets,” or places to stash your nest egg. 


The first is the Taxable Bucket. If you have a brokerage account where you trade stocks, bonds, options, or mutual funds, this is taxable. First you’re taxed when you put money in, and then you’re taxed on all of the interest you’ve earned by lending your money to strangers. This is called the Capital Gains tax.


The second is the Tax-Deferred Bucket. This is a traditional IRA. You put money in now without being taxed, but you get taxed on everything that comes out, both the principal and the earned interest (gains).


The third bucket is the Roth IRA. The Roth is like the traditional IRA, except in reverse. You get taxed on the money you put in, but you can take it out tax free. The Roth is magical for two reasons. The first is that taxes are at an ALL TIME LOW. David McKnight is like a dancing inflatable arm man outside of a car dealership. In 2017 Congress passed the Tax Cut and Jobs Act of 2017 (which started Jan 1st 2018) with a clause that the policy would evaporate on Jan 1st 2026 if Congress did nothing. And as we all know, if there’s one thing Congress is good at, it’s nothing. So now we know that taxes are low, and will inevitably rise in the future. The possibility that taxes will go even lower is unfathomable. For this reason, dump money into a Roth IRA. The second reason Roth IRAs are magical is that disbursements from this fund don’t count as income.


If you dumped your money into a traditional IRA instead of a Roth, you’ll be ripe for the government money harvest. There are Required Minimum Distributions at 70 ½. 

When you retire, your “income” is the first two buckets, plus half of your social security. It does NOT include your Roth. As an old person, you’ll likely only be able to take the standard deduction of $24,000. If your “income” is greater than $24,000, you’ll have to pay taxes. It’s entirely possible that your Required Minimum Distributions are too high and will put your “income” above $24,000. Oh yeah, if you make too much “income” your social security gets taxed too.

The way to game the system is to have $30,000 of distributions from your Roth, plus your $24,000 from your “income”. Now you have $54,000 of income and you are still tax free. Voila.

What do you think? Right? Wrong? Pure poppycock?