If you plan to retire early, and have money in retirement accounts (401ks and IRAs), you might ask “How do I access my money early without penalty?” Well one of the main methods is the Roth Conversion Ladder: A pipeline of conversions from your traditional (pre-tax) accounts, into your Roth account, where you let it “season” for 5 years before withdrawing it.
This is one of the key tools for people in the FIRE (Financial Independence / Retire Early) Community!
Another method to access your retirement account money early is the use of Substantially Equal Periodic Payments. I discuss this in another video here: …(read more)
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This channel provides so much value thanks dude
Noting the 5-year rule, if your Roth principle is always withdrawable, can IRS distinguish between a conversion contribution vs a principle pull? Is there a last in, first out rule? Couldn’t year 1 of retirement, I roll over $X conversion from a traditional IRA and withdraw the same $X from the same IRA the same year, as long as I had $X in the Roth prior that had been there 5+ years?
Great video and visuals! If say I ladder $25k for 5 years, come year 6 can I withdraw less than $25k to optimize for taxes? Say I withdraw $20k year 6, does the extra $5k carry over and I could withdraw $30k in year 7 and so on?
I would really appreciate if you would be willing to answer my question. I am trying to understand why a traditional IRA is needed for the conversion process? I have googled online, watched other videos, and many folks keep saying you can convert from 401k to Roth IRA, but no mention of traditional IRA OR if the traditional IRA is mentioned no explanation of why one must convert to it before converting to a Roth IRA.
Would really appreciate if anyone can link me to sources explaining this !
Amazing strategy, brings hope to the future. Thanks for such a clear and concise video
Fantastic explanation. Thank you
Your videos are awesome and super helpful. Please make more!
2 questions. A) why not start the conversions 5 years before retirement? B) why not just roll it all to the Roth ira at retirement and not worry about any waiting period as that would just go straight to the contribution bucket?
I’m 56 now, wondering if this strategy would make any sense for me. I have a very small Roth right now and a large IRA
Is having both a traditional and roth IRA better than just having one larger roth IRA? That way you can still just pull from contributions and not worry about the conversions bucket.
Could you update this video showing the non taxable conversions bucket? Can they only be accessed once the full taxable conversions are all taken out?
Nice graphics – they helped.
Awesome breakdown of the process.
Hey Will, when you take money out of pre-tax acct to convert to Roth, do you have to put all of it in Roth, or can you reserve some of it to pay tax on the conversion later? If not, what if you can't pay the tax when it comes due?
If I have been contributing to a Roth IRA for more than 5 years and do in-service conversion from 401k to Roth 401k, then quit my job and roll over the Roth 401k to Roth IRA, does the 5 year rule applies to the money I converted from 401k to the Roth 401k which I finally converted to Roth IRA?
You also need cash to pay the taxes on every conversion!
Help! So I just retired at 62 and have only 401 k
All withdrawals will be taxed. So is a Roth conversion ladder even going to help me?! Ie I will have withdrawals fir year 1 to live on (get taxed) and maybe convert some funds over to Roth (get taxed more)
Does that raise me into higher tax bracket? The two withdrawals? Or not since one chunk went to Roth conversion?! Also any guidance on how much to convert over at a time?! And if do not have the funds to pay taxes, and have to take out of the 401 k ( which now will decrease the earning growth power ) is it even worth it to do Roth ladder conversion now? Did I miss the boat? I know it would have been ideal to transfer that 401k to a Roth years ago! But employer did not have Roth option and if I could have done it with another broker- I was not aware! So here I am now with a good nest egg but the taxes will bring that nest egg by a 1/3! Any advice would be much appreciated!
Your videos are SO good.
Thanks so much for the video. I have one question I was confused about. When you convert from the 401k to a Roth IRA, you have to pay income tax on it. Do you also have to pay the penalty on it as well?
Thanks! one of the simplest visuals I have seen on this complex topic. Very nice job with easy to understand visual!!
This is the clearest, most succinct explanation I have seen.
How are roth 401k rollovers treated for early withdrawal? Are contributions and earnings separated in your roth 401k and you roll those over to respective 'buckets' in your ira or is it all considered contributions after rollover or does it have a 5 year period too?
your videos are too good. please keep making more!!!
can you do partial 401k conversions to roth ira while you are employed?
Hiii this was so helpful! Question: If you have a Roth 401k that you roll into a Roth IRA… I’m guessing you don’t have to pay taxes on that amount since you already did?
Awesome illustrations Will. This was really clean and concise info