Hi MMM community,
I've been reading the Mad FIentist blog and I came across his article explaining the "Roth IRA Conversion Ladder" technique for turning pre-tax retirement contributions into post-tax withdrawals while minimizing taxes and fees.
http://www.madfientist.com/traditional-ira-vs-roth-ira/This sounds like a great idea for traditional retirement, but it doesn't seem to make sense for early retirement. The Mad FIentist claims that you can avoid early withdrawal penalties by waiting at least 5 years before making Roth IRA withdrawals. The IRS website, however, doesn't seem to support this claim.
There's a flow chart on the IRS website explaining when Roth IRA withdrawals are subject to early withdrawal penalties and when they're not (scroll about halfway down or Ctrl+F "additional tax on early distributions").
http://www.irs.gov/publications/p590b/ch02.htmlThe flow chart seems to say explicitly that you have to wait at least 5 years before making Roth IRA withdrawals AND you have to be at least 59 1/2 years old. Mad FIentist seems to claim otherwise: that you can withdraw that money even if you're younger than 59 1/2 as long as you wait 5 years.
In short, Mad FIentist says it's you only have to meet A OR B requirements to avoid early withdrawal penalties (5 year wait OR 59 1/2), whereas the IRS website says you have to meet A AND B requirements (5 year wait AND 59 1/2).
Does anyone have any information to support or disprove Mad FIentist's advice on the conversion ladder strategy? Does anyone have any personal experience using this strategy as part of FIRE (58 or younger)?
I just want to make sure that if I (or others) follow this advice, that I don't run into tax problems down the road.
Thanks so much!