This document outlines a 7-step process for retiring early while avoiding withdrawal penalties: 1. Determine your basic needs and wants to reduce spending; 2. Max out 401(k) and IRA contributions to lower taxable income; 3. Invest additional savings in a brokerage account for long-term growth; 4. Retire once financial goals are met; 5. Initially live off capital gains and dividends which may be tax-free; 6. Gradually convert pre-tax retirement funds to Roth IRA to pay taxes at lower retirement rates; 7. After 5 years, withdraw tax-free from Roth IRA contributions and earnings.

1. Avoiding early
wi thdrawal
penal ties
al together!
HOW TO RETIRE EARLY

2. STEP #1: FIND YOUR “ENOUGH”

3. STEP #1: FINDING YOUR ENOUGH
 Without consciously figuring out what you need to be happy,
yo u ’ l l a lway s b e s u s c e pti ble to t h e h e d o nic t re a dmill.
 As fel low Fool Morgan Housel has pointed out, happiness
real ly boi ls down to a few key factors:
 Control over what you’re doing.
 Progress in what you’re pursuing.
 Connections to other people.
 Having purpose and meaning.
 Tr y to fo c u s o n t h e s e fo u r t h i ng s a nd yo u ’ l l b e l e a ding a mo re
balanced l ife whi le (most l ikely) drastically reducing your
spending.

4. STEP #2: MAX OUT YOUR 401(K) AND
TRADITIONAL IRA

5. STEP #2: MAX OUT YOUR 401(K) AND
TRADITIONAL IRA
 We’ll get to why these two can work even better
than a Roth a few steps later.
 For now, all you really need to know is that by
maxing out both of these accounts, you
significantly reduce your taxable income.

6. STEP #3: USE YOUR EXTRA SAVINGS TO PUT
INTO NON-TAX ADVANTAGED ACCOUNTS

7. STEP #3: USE YOUR EXTRA SAVINGS TO PUT
INTO NON-TAX ADVANTAGED ACCOUNTS
 Yup, you read that right—star t investing in a regular old
brokerage account.
 B e c a us e yo u ’ r e a l o n g - te rm i nve s to r, yo u s h o u l dn’ t owe mu c h —
if anything—in capital gains.
 You wi l l , however, need to pay taxes on dividends you receive.
 Once you retire, this wi l l provide you with a necessary cushion
and, in the end, you might not owe anything in taxes.

8. STEP #4: RETIRE!

9. STEP #5: USE YOUR MONEY FROM STEP 3
TO LIVE OFF OF…FOR NOW

10. STEP #5: USE YOUR MONEY FROM STEP 3
TO LIVE OFF OF…FOR NOW
 Bel ieve it or not, you could actually l ive of f of your capital
gains and dividends tax-free i f yo u ’ ve t ru l y re d u c ed yo u r
spending.
 I f you are in the 10% or 15% tax brackets in retirement, you
owe nothing fo r s u c h g a i ns. A s I ’ ve shown before, you could
bring in over $100,000 per year and sti l l be in this tax
bracket, depending on your fi l ing status and the exemptions
that you take.

11. STEP #6: BEGIN SLOWLY CONVERTING TO
A ROTH IRA

12. STEP #6: BEGIN SLOWLY CONVERTING TO
A ROTH IRA
 In your first year of retirement, conver t an amount equal to
your expected yearly expenses into a Roth IRA. You wi l l
continue doing this every year unti l al l of your money has been
conver ted.
 A ny c onve r s i ons are c ons i d e red re g u lar i nc ome , s o t h e re ’ s
l ikely no way to avoid paying some taxes on these conversions.
 However, because you are retired and living off of less than you were
earning in your working years, the taxes you owe should be
substantially less than had you initially put your money into a Roth
IRA.

13. STEP #7: AFTER FIVE YEARS, START
LIVING OFF OF YOUR ROTH MONEY

14. STEP #7: AFTER FIVE YEARS, START
LIVING OFF OF YOUR ROTH MONEY
 Once five years have passed, you can withdraw any principal
yo u ’ ve p u t i n a Rot h tax free!
 By the time you reach 59 ½, you can also withdraw any capital
gains tax-free as wel l!
 A n d j u s t l i ke t h a t , yo u ’ ve avo i d e d p ay i n g a to n o f t a xe s , a n d
maximized your time for the most impor tant things in l i fe!

15. LOOKING FOR OTHER WAYS TO MAXIMIZE
RETIREMENT INCOME?
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