Early Access to retirement account | Roth IRA conversion ladder explained

I graduated as an accountant and every single day I learned about new ways to save on taxes and wiggle around tax laws. But the truth is that non of this information was taught to me in school, I had to learn it for my self.

Excel: https://drive.google.com/file/d/1MBiODDk-aM-9lOqfhsC685rispe6v0CN/view?usp=sharing

1. Calculations for retirement
– Let’s start this video off by giving you guys something for free
– And also a way to figure out how much money you will have by the time you use the ladder and also how much money you will need.

Here is the excel sheet
– Just download a copy link below
– To request permission, just download your own copy.

2. The Idea, Rules, and Limits
– We basically get access to our 401k account money, by putting it into a Roth ira
– This way we can avoid early withdrawal penalties and capital gains tax
– Now honestly this entire idea is for people that want to retire early and are willing to on less than 50% of their income, sometimes even less ( currently I live on 5%.)- but you have to have a decent income to go that low.

401k plus Employers match:
– The current match today on a 401k is around 19,500 ( and employees can help you save retirement by matching also)
– Usually, the best strategy is to max out the match to get free money and then invest the rest of the money into a Roth Ira if you qualify and if you don’t then a traditional ira
– And what money is left you max out the 401k and then with the rest of the cash just invest into your normal investment account

Tip: if you are your own employer, you can contribute the max 19,500 and also another $37,500 form the business for a total combined amount of 57,000 ( and that saves you a ton of money in taxes also)

3. Plan in action
– As we know when you contribute to a 401k account its pretax money
– Plus you can deduct the contribution it from your income
– Which then can adjust your gross income to help you qualify for a Roth if you can’t qualify, and help you with taxes

So In action, the Plan looks like this:
– You contribute to a 401k to get the match
– You take the rest of the max out your Roth or traditional ira or combination of both as long as it doesn’t exceed 6k
– Then you take the rest and max out the 401k
– When you ready to leave your job, you roll it over into a traditional ira without any taxes or penalties
– But to get access to cash without penalties you’ll need to roll it over into a Roth ira if you qualify or converted the ira into Roth ira which is going to be more expensive.

However:
– When you roll over the money, it’ll be taxed as normal income tax because you avoided the tax before
– So the best way to do it at a small amount of maybe 50k, so you don’t increase your tax bracket by to much
– Once you roll It over the clock on Roth resets to five years every time you roll over, so ideally you can contribute every year the amount you will need for all those years.

Tip: make sure to have the money saved for the taxes, so you don’t take it from your retirement account, because it’ll cost you money in gains.

4. The Big Problem
– You basically have to wait until the clock hits the 5 years mark to start taking money out finally
– So you will have a source of income until you hit that 5-year mark
– And that why you can invest into a normal taxable account or get a part-time job you enjoy, or get into real estate

5. There is a second way to do, to avoid taxes altogether ( but you have no tax benefits)
– And its to ask your employer about a Roth 401k plan where do the same matching
– In this case, you contribute you’re after-tax income and have not tax benefits
– And if you can qualify for a Roth ira you can roll it over without any issues and without resetting the 5-year clock.
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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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