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FIRE Financial Independence Retire Early

I just turned 24 and paid off my student loans earlier this year so now I’m looking at additional retirement fund/savings options. I have a pretax 401k and I’m thinking of adding a Roth IRA. I’ve done some research on the Roth conversion ladder and it sounds like these would have me in a good position? Any advice welcomed!

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B1 is correct. Roth conversion is close, or in, retirement. You're on the right track though OP. Focus on traditional 401(k) and Roth IRA for now, max both of them to the full extent under current laws and then wait for the conversion later. Look for backdoor Roth when your income goes over the limit.

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Depends on your goals. If you’re planning on retiring before 40 and spend very little in retirement, you can avoid taxes almost completely on pretax 401(k) and combine it with a Roth Ladder to avoid early withdrawal penalties. If you’re going for a “Fat FIRE”, are staying in consulting for a while and are mostly looking for flexibility, you may consider a Roth 401(k) if your employer offers one. Then in a few years when you start to hit peak earning transition back to a pretax 401(k) and build that up until retirement. The Roth will fill the gaps between retirement and age 59.5 and you can take the traditional 401(k) after, eliminating the need for the ladder

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Why wouldn’t you do a “normal” Roth IRA strategy (with backdoor Roth if you top income limits)? Just asking since it’s the first I’m hearing of a ladder, and cursory research suggests it’s better when you’re closer to retirement since you still have to pay income tax, just no penalty, for early withdrawal

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Right, I wouldn’t do the conversion til much later and close to retirement I just wanted to check I’ll be set up properly

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Gotcha, yeah! I agree, to OP’s question about being set up, all you need is to have a Roth IRA open before the five-year-before-retirement mark hits. Ah, understood. That clarified everything - I’m returning to my employer after school so my Trad 401K is now a Roth 401K, but I think you’re right that if you’ve separated from your employer, you’d have to go from a Trad 401K to a Trad IRA and then to a Roth IRA. So it sounds like that assumption was where the difference was!

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