How to use Roth Conversion Ladder if you retire early?
Photo by Evan Dvorkin on Unsplash
First we make PRETAX [saved money at your higher tax bracket] contributions to retirement accounts like 401K, 403b or Traditional IRA if low income while working
Then we retire early.
Then Transfer money from above Retirement accounts to Traditional IRA, no tax paid at this stage as both are pretax money
Then Convert [transfer] money from Traditional IRA to Roth IRA, pay tax [paying less taxes as income is less in retirement] as Roth IRA is post tax money here.
Now, wait for 5 yrs at least to be able to withdraw this money without tax or penalty for withdrawing early
You can do every year like this to withdraw every year starting after 5 yrs from the first conversion.
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