I'm currently planning on retiring before the 59 1/2 year old milestone where 401k's and IRA's become accessible penalty free. One workaround I've heard of to access your retirement funds early is to do conversions out of your 401k accounts into Roth IRA's. After a 5 year seasoning period, you can withdraw the principal from the Roth account penalty free. So you could conceivably access your 401k funds early by doing these conversions on an annual basis.

For more information, the concept is discussed in "Strategy 2" here:

How Much is TOO MUCH in your 401(k)?

First, is the above a valid plan and not in violation of any IRS rules?

Second, are there any limitations that would make this an unfeasible way to fund my first years of retirement?

As an example, is there a limit to the amount of funds I can rollover from my 401k to a Roth IRA each year?

3 Answers 3


The plan is perfectly valid and legal as tax rules currently stand. There is no limit to the amount you can rollover or convert to Roth. Assuming your 401(k) is traditional pre-tax, you'll have to pay income taxes on the amount you convert above personal exemption + standard deduction, which is currently about $10k/year for single filers.

The other caveat is you'll need funds to live off of while your conversion money is seasoning for 5 years in your Roth IRA. If you start the conversion while you are still working, you'll be paying taxes on it in your marginal bracket, which will negate much of the benefit of the pre-tax 401(k).

If your living expenses are low, you can convert about $10k/year without federal income taxes, while living off capital gains from a taxable account which have a 0% rate in the 15% income tax bracket (goes up to about $37k/year).


You cannot roll over your 401k money in an employer's 401k plan into an IRA (of any kind) while you are still employed by that employer. The only way you can start on the conversion before you retire (as Craig W suggests) is to change employers and start rolling over money in the previous employer's 401k into your Roth IRA while possibly contributing to the 401k plan of your new employer. Since the amount rolled over is extra taxable income (that is, in addition to your wages from your new job), you may end up paying more tax (or at higher rates) than you expect.

  • 1
    Excellent point I forgot to mention that you can't do this with a 401(k) while you are still with that employer (in addition to it being a bad idea because you'll just pay back the taxes you saved previously).
    – Craig W
    Aug 29, 2014 at 23:14

If you leave your employer at age 55 or older, you can withdraw with no penalty. Mandatory 20% withholding, but no penalty. You reconcile in April, and may get it all back. If you are sub 55, the option is a Sec 72t withdrawal. The author of the article got it right. I am a fan of his.

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