Roth Laddering

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Use a Roth Conversion Ladder to access money from tax-advantaged accounts early, without the 10% early withdrawal penalty if you're under 59.5 years old.

Traditional 401ks and Traditional IRAs don't let you access your funds until you reach a certain age. Roth IRAs, however, let you access the principal without any penalty. You can take advantage of this by converting funds in traditional accounts to a Roth account:

  1. Estimate how much you'll need within five years (the lockup period before you can access it).
  2. Convert that amount from your Traditional 401k (or IRA) to Roth IRA. You'll need to pay taxes on this conversion, which is why you should spread out the conversion in multiple years so you'll pay taxes at a lower bracket.
  3. Wait five years.
  4. You now have access to the amount you converted in your Roth IRA.

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