Money Girl Should I Create a Roth IRA Conversion Ladder?
Nov 1, 2024
Discover the benefits of Roth IRA conversions as a savvy strategy for high earners to bypass contribution limits. Learn how a conversion ladder can aid early retirement aspirations while ensuring tax efficiency. The discussion unpacks the critical five-year rule for withdrawals and offers practical tips for using non-retirement accounts to maximize benefits. Navigate the complexities of constructing a conversion ladder to avoid penalties and optimize retirement withdrawals. Perfect for those looking to secure their financial future!
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Roth IRA Basics
- Fund a Roth IRA with after-tax money, allowing earnings to grow tax-free.
- Withdraw contributions tax-free and penalty-free anytime, but earnings withdrawals before 59.5 are generally penalized.
Roth Conversions
- Roth IRA conversions offer a way to boost your Roth balance beyond contribution limits.
- This involves paying income taxes on pre-tax funds (e.g., from a 401k) and moving them to a Roth IRA.
Roth Conversion Ladder Strategy
- Build a Roth conversion ladder by making multiple smaller conversions over several years, not one lump sum.
- This minimizes the tax impact by avoiding being pushed into a higher tax bracket.