401k, IRA, Roth IRA and other retirement stuffs

[Luka Milicevic]

Was hoping someone familiar with the matter could shed some light on the matter.

I'm 30 years old now. I will have the option of retiring in 5-7 years. I probably wont, but I will have the option. I've invested all my money in RE, and have always done the minimum amount in my 401k that my employer matches. 

I would like to start doing more to reduce my taxable income for the next 5 or so years. 

I'd like to roll my 401k into a traditional IRA and then set up a Roth IRA conversion ladder to avoid the 10% penalty tax. I can't wait 30 years to touch that money and I also can't pay a 10% tax penalty for early withdrawal. This was one of the "loopholes" I found.

My question is - Will this all be possible, roll my employer sponsored 401k into a regular ole IRA, set up a roth IRA conversion ladder (takes 5 years), Sit back and drink fruity drinks on the beach.

Anyone familiar with the matter please chime in and feel free to add anything you can think of that is relevant to the topic. If you think this is a terrible idea, I'm insane, etc please say so, but include WHY you think so. That way I have something to work with. 

Happy investing.

[Brian Eastman]

@Luka Milicevic

The first barrier will be getting the ability to move funds.  Generally speaking, a current employer 401(k) will be locked into that plan so long as you are working for the company.  In some cases a plan may allow for an "in-service" distribution for rollover, but that is rare.

If you are self-employed, then you can look at a Solo 401(k) plan which may be more suited to your goals of the Roth conversion.  Your title calls yourself a "developer", so if you have activities you engage in that create earned income instead of just passive earnings, then that might qualify as self-employment.

A Solo 401(k) can hold both tax-deferred and Roth funds, so you could do your ladder of incremental conversions over time in one plan.

The Solo 401(k) would also have the benefit of higher contributions, potentially as high as $56,000 in your age bracket, depending on income.  Of this, you can make $19,000 directly as Roth contributions, without getting phased out due to higher income.

And, with a self-directed Solo 401(k) you could put that tax-sheltered money to work in the asset where you are having success - real estate.

I think the desire to sit on a beach and sip fruity drinks is "totally insane".  You really should plan to tie yourself to a desk for 30+ years instead.