I get that this thread is primarily regarding the building of a Roth Conversion Ladder - convert tIRA dollars to Roth IRA over a period of years, having them 'age' in the Roth account for 5 years, and then withdraw those conversion dollars from the Roth to cover annual expenses. Furthermore, I get that the majority of people who are pursuing FIRE are younger than the norm (aveage age 22-to-30). I often interact with people who (like me) are in the 'not-so-early... early-retirement' camp - those who got a late start in their 40's or 50's.
There is ANOTHER WAY
to withdraw funds from a 401k or 403b ("company retirement plans") and avoid the 10% early withdrawal penalty (from IRS Publication 575) specifically for people starting FIRE in the calendar-year they turn age 55
(or older, or age 50 for qualified public safety employees). Generally referred to as the 'Rule of 55'
: (quote below from http://www.401khelpcenter.com/401k_education/Early_Dist_Options.html#.WCEQlPkrLIX
NOTE: this does NOT apply to ALL retirement savings plans - specifically it does NOT apply to IRA & Roth IRA accounts. Leaving Your Job On or After Age 55
The age 59½ distribution rule says any 401k participant may begin to withdraw money from his or her plan after reaching the age of 59½ without having to pay a 10 percent early withdrawal penalty.
There is an exception to that rule, however, which allows an employee who retires, quits or is fired at age 55 to withdraw without penalty from their 401k (the "rule of 55").
There are three key points early retirees need to know.
First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575.
Second, if you still have money in the plan of a former employer and assuming you weren't at least age 55 when you left that employer, you'll have to wait until age 59½ to start taking withdrawals without penalty. Better yet, get any old 401k's rolled into your current 401k before you retire from your current job so that you will have access to these funds penalty free.
Third, this exception only applies to funds withdrawn from a [company sponsored retirement plan - a 401k or 403b]. IRAs operate until different rules, so if you retire and roll money into an IRA from your 401k before age 59½, you will lose this exception on those dollars.
IRS Publication 575 (p.35) goes on to define 'qualified public safety employees' as:
"You are a qualified public safety employee if you provided police protection, firefighting services, or emergency medical services for a state or municipality, and you separated from service in or after
the year you attained age 50." Qualified public safety employees also includes: Federal law enforcement officers, Federal customs and border protection officers, Federal firefighters, Air traffic controllers, Nuclear materials couriers, Members of the United States Capitol Police, Members of the Supreme Court Police, and Diplomatic security special agents of the United States Department of State.
In practice, using the "Rule of 55" might look like this:
Sam will turn 55 in December. In August of that year, s/he quits, is fired, or retires from his/her job at WidgetSoftware, LLC. They can request a distribution from WidgetSoftware's 401k plan, and avoid paying 10% early withdrawal penalty. They would continue to make distributions from their WidgetSoftware 401k plan to pay expenses during the following 5 years until reaching age 59-1/2 at which point they could begin taking withdrawals from their IRA and Roth IRA accounts. At the same time, while withdrawing annual expense amounts from their 401k, Sam *might* also begin converting his/her IRA to a Roth IRA - not with the goal of building a Roth IRA ladder to be used prior too age 59.5, but with the goal of converting ALL their IRA funds into Roth IRA funds prior to age 70 to avoid annual required minimum distributions.
The "Rule of 55" discussion may not belong in this discussion of Roth Conversion Ladders, and if that's the case, I will happily remove this response.
However, I have read very few references to the rule of 55 mentioned anywhere else in the forums, and know there are a lot of people who are unaware of this exception to the 59-1/2 age limit for penalty free 401k withdrawal.