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What’s Poppin’,

This is the Master Money Newsletter. The Money Newsletter teaches you how to secretly have more money than all your friends. You are going to be one stealthy and wealthy person.

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Here’s what we have on deck today:

📰 Read: The Step By Step Guide to The Roth Conversion Ladder

📺 Watch: How Much You Need to Have Saved and Invested to Retire (By Age!)

🎧 Listen: How to Pay No Taxes in Early Retirement, Debunking the Mortgage Fee Fiasco, and More! With Katie Gatti (From Money With Katie!)

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💸 The Step By Step Guide to The Roth Conversion Ladder

This week, we talked to Katie Gatti about how to optimize your taxes in early retirement. A big part of this strategy is the Roth Conversion Ladder.

Here's the situation: you've been saving diligently, making all the right moves with your traditional 401(k) or IRA. You're set for a nice, comfy retirement, but there's a small hitch – you don't want to wait until 59 1/2 to start sipping margaritas on a beach or learning how to play pickleball (or both, if you're multi-talented). Why? Because you can't withdraw from these accounts without a penalty until that ripe old age.

Enter the Roth Conversion Ladder. This financial strategy is like an "early retirement golden ticket." It's a process that takes advantage of tax laws and allows you to access your retirement money earlier than you would normally be able to, without the usual 10% early withdrawal penalty.

The cherry on top? The Roth IRA's beautiful tax structure. When you convert funds from a traditional retirement account to a Roth IRA, you'll pay taxes on the amount you convert. But after that, the money grows tax-free and can be withdrawn tax-free in retirement. Here is how to do it step-by-step.

Step 1: Contribute to Your Traditional 401(k) or IRA

The Roth Conversion Ladder starts with money in a traditional 401(k) or IRA. These retirement accounts are tax-advantaged, meaning the money you put into them isn't taxed until you withdraw it. So, step one: keep contributing to these accounts.

Step 2: Plan Your Early Retirement Budget

Next, figure out how much money you'll need annually in early retirement. This is a crucial figure because it'll guide how much money you'll need to convert each year from your traditional retirement accounts to your Roth IRA.

Step 3: Leave Your Job (Optional)

This step sounds a bit radical, but it's important. In order to start the Roth Conversion Ladder, you need to leave your job. Why? Because once you do, you can roll over your 401(k) into an IRA, which allows for more flexibility when it comes to conversions.

Step 4: Roll Over Your 401(k) to a Traditional IRA

Now it's time to roll over your 401(k) into a Traditional IRA. This allows you to control how much you convert to a Roth IRA each year, something you can't do as easily with a 401(k).

Step 5: Convert to a Roth IRA

Here's where the magic starts. Each year, you're going to convert a portion of your Traditional IRA into a Roth IRA. The amount you convert will be equivalent to your projected budget in five years (remember step 2?). This conversion is treated as taxable income, so you will owe taxes on this money at your current tax rate. However, after this conversion, the money will grow tax-free within the Roth IRA.

Step 6: Live Off Other Funds for 5 Years

Wait, what? Here's the tricky part. The IRS allows penalty-free withdrawals from your Roth IRA only after five years have passed from your first conversion. Therefore, during these first five years of your early retirement, you need to live off of other savings, like a taxable investment account, savings account, or perhaps part-time work.

Step 7: Start Withdrawing from Your Roth IRA

Congrats! You've made it through the five-year waiting period. You can now withdraw the amount you've converted each year, penalty-free. Since you already paid taxes at the time of conversion, you won't owe anything additional. And you continue this process each year, creating a "ladder" of conversions and withdrawals, hence the name.

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📈 Quick Tip Of The Week - Time For a Subscription Audit!

Picture your bank account as a boat. You're sailing along nicely but there's a small leak - your subscription costs. It's not sinking your boat, but it's definitely causing some unneeded stress.

So, what can we do about it? Here's a simple 4-step plan:

Step 1: Perform a Subscription Audit

This might sound all corporate-y, but all it means is finding out exactly what you're subscribed to. You'd be surprised how many of us are paying for services we totally forgot about. Check your bank and credit card statements to see what's coming out each month.

Step 2: Evaluate Each Subscription

Now that you have a list, go through each one and ask yourself: "Am I getting value out of this?" If you're using Netflix every day, then that's an easy 'yes'. But if you're still paying for that obscure foreign film service just because you loved one miniseries 3 years ago, it might be time to say goodbye.

Step 3: Look for Alternatives

There are usually cheaper options out there. Love reading but spending a lot on books? Try the library, or a single subscription like Kindle Unlimited. If you're on a family plan, check if any other family members are also subscribed and could join your plan, or vice versa.

Step 4: Negotiate or Cancel

If a service is still worth it but a bit expensive, don't be afraid to negotiate. Some services will give you a lower rate if you ask or threaten to leave. And if you're not getting enough value, cancel. It might hurt at first, but your wallet will thank you.

So, just like patching up a leaky boat, fixing your subscriptions can help keep your financial vessel sailing smoothly. It might take a little time, but your future self will be grateful you took the effort!

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News You Can Actually Use

Buy Now, Pay Later? 💸

​The Cut's piece on the "Buy Now, Pay Later" trend dives into the rise of this purchasing model and its potential consequences. The article raises concerns about how the system can lead to overspending and accumulation of hidden debt, especially among younger consumers. While the convenience of spreading payments over a period might be attractive, it underscores the importance of mindful spending habits and financial literacy.

Generational Wealth 🏛️

​The New York Times takes a deep dive into the distribution of wealth across generations. The report highlights how economic factors, societal changes, and policy decisions have shaped the accumulation of wealth among Baby Boomers, Generation X, and Millennials. It provides an interesting perspective on how wealth is transferred, its impact on the economy, and the future implications for younger generations.

End of the Great Resignation? 👨‍💼

​According to CNBC, the 'Great Resignation' trend that has defined the pandemic-era labor market seems to be coming to an end. The piece notes a decrease in job-switching and resignation rates and suggests that more people are seeking stability after the upheaval of the pandemic. However, the labor market continues to evolve, with remote work and flexible arrangements becoming increasingly prevalent.

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High-Performance Book Club 📚

I get a ton of questions from listeners and readers as to what I am reading. So we decided to let you know via the newsletter. The High-Performance Book Club will be a way to share this. If you want to be Elite in your career, business, or with your wealth, then welcome to the club. If you would like to see our previous picks, you can find them here.

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​The Millionaire Real Estate Investor
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The Personal Finance Podcast 🎙️ ​ ​

​Baby Proof Your Wallet: The Ultimate Guide to Preparing Financially for A Baby​

​How to Pay No Taxes in Early Retirement, Debunking the Mortgage Fee Fiasco, and More! With Katie Gatti (From Money With Katie!)​

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Youtube

How Much You Need to Have Saved and Invested to Retire (By Age!)

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