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The usual exceptions to the IRA early withdrawal penalties seem to be rather limited. Some of them are only available in specific circumstances such as the owner's death. The only one that seems to be allowable for any IRA investor and for any purpose is SEPP which looks rather restrictive in terms of the amount withdrawn and the time period.
Is it practical to use a Roth conversion to withdraw money early with no penalty? From what I read it seems like this could work. You would of course pay income tax on the conversion, but you'd have to pay it anyway at the time of withdrawal. From my understanding of the withdrawal rules you would have to wait 5 years after the conversion, but the withdrawals are considered as being of a favorable order (first contributions and then the earliest conversion) so it wouldn't be a problem if you had also made some direct Roth contributions earlier that you could live off for 5 years.
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I believe this is valid, but maybe not widely practical.
If you retire in the year you turn 55, many 401k plans allow penalty-free distributions.
So let's say you plan to retire even earlier. You need to be an uber-saver to do that, so you are probably doing more than just maxing out a 401k and IRA every year. Either you've got a taxable account to tap, or a 457 (no withdrawal penalty).
OK, so let's say you're an uber-saver, but don't have a significant taxable account or 457 or Roth.
Roth converting during your last few working years could be a mistake -- these are often the peak earning years and peak tax rate years. (I suppose if the tax rate difference is less than 10% this could be considered better than a 10% penalty withdrawal, but surely an SEPP setup would be a better deal.)
Might work ok if you have a phased retirement--a few years of part time work.
But most likely you would wait until retirement before doing any Roth conversions, so that still leaves a 5 year window that you would need to fill. As you say, that could work if you have a pre-existing Roth.
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