How to use a Roth conversion ladder for tax-free income

1060. Dreaming of retiring early or taking an extended career break, but worried your money is locked away until age 59.5? Host Laura Adams explains a powerful strategy to retire early and avoid expensive penalties.

Key Takeaways

• A Roth conversion ladder allows early retirees to move tax-deferred funds into a Roth IRA and access the converted amount tax- and penalty-free before 59.5.
• Each Roth conversion requires a separate five-year waiting period before you can withdraw it penalty-free.
• Building a Roth conversion "ladder" means executing annual conversions so that starting in year six, you unlock a new amount of penalty-free funds to spend.
• Doing Roth conversions in low-income years, such as at the start of early retirement, allows you to pay less income tax.
• Have a plan to pay taxes on a Roth conversion from savings or a taxable brokerage account and not from your retirement account.
• Be aware that having higher income due to a Roth conversion could inadvertently reduce ACA health care subsidies.

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