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From Tim Ferriss to Mr. Money Mustache, fueled by contemporary prospects of making riches in technology and real estate, to name a few, one of the most popular subjects in the personal finance blogosphere is early retirement and financial independence.

Assuming that a person of a non-conventional retirement age, say 35 or 40, were to withdraw from workforce resting on their savings alone, meaning no income, including social entitlements (unemployment or welfare), what kind of fiscal scrutiny can that person expect in the U.S. from IRS ? If one were to live entirely off their savings, not even having investment income, are they obligated to file their tax return? Basically, is 1040 required in the U.S. even if no income was generated and does that raise any red flags to IRS auditors when a young person reports no income but also no withdrawals from any retirement account because they are not of age yet?

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    From personal experience, no. There have been several years of my life in which I did not earn enough to make it necessary to file, so I didn't, and never had any sort of inquiry from the IRS. Though note they were isolated years (for finishing thesis, travel, etc), not a stretch of several continuous years. And of course many people do similar withdrawals from work due to marriage, children, etc.
    – jamesqf
    Commented Aug 3, 2015 at 21:28
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    How can one have enough to retire but not enough interest or dividends to need to file?
    – JTP - Apologise to Monica ♦
    Commented Aug 3, 2015 at 22:22
  • by having cash in a checking account, @JoeTaxpayer
    – amphibient
    Commented Aug 3, 2015 at 22:23
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    @amphibient $35k/year for 40 years, so $1.4M, absolute minimum I'd guess. Someone's going to put that in a zero-interest checking account, and not even try to get a percent of interest or two from insured CDs? I have to say I doubt that. Not to mention inflationary concerns, who knows how much you'd have to have. Unless you're talking entirely off the grid...
    – Joe
    Commented Aug 3, 2015 at 22:38
  • it could be a temporary retirement, AKA sabbatical
    – amphibient
    Commented Aug 3, 2015 at 22:42

1 Answer 1

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IRS Pub 554 states (click to read full IRS doc):

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"Do not file a federal income tax return if you do not meet the filing requirements and are not due a refund. ... If you are a U.S. citizen or resident alien, you must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1-1 below. "

You may not have wage income, but you will probably have interest, dividend, capital gains, or proceeds from sale of a house (and there is a special note that you must file in this case, even if you enjoy the exclusion for primary residence)

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    What role does the Affordable Care Act play in the filing rules? Isn't proof of coverage via tax documents?
    – mhoran_psprep
    Commented Aug 4, 2015 at 0:29
  • @mhoran_psprep if your income is below the filing requirement then your penalty will probably be zero anyway.
    – littleadv
    Commented Aug 4, 2015 at 2:14
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    But do you have to file?
    – mhoran_psprep
    Commented Aug 4, 2015 at 2:20
  • Note that the statute of limitations does not begin until a return is filed.
    – d_dd
    Commented Aug 4, 2015 at 3:18
  • see my comment above regarding ACA
    – JTP - Apologise to Monica ♦
    Commented Aug 4, 2015 at 14:59

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