This study uses latent transition analysis to examine reading development across the kindergarten and 1st-grade year. Data include poverty status and dichotomous measures of reading at 4 time points for a large sample of children within the Early Childhood Longitudinal Study. In each of 4 waves of the study, 5 latent classes were represented in different proportions: low alphabet knowledge, early phonological processing, advanced phonological processing, early word reading, and early reading comprehension. Transition probabilities were calculated for the full sample and for children living above and below poverty. The findings indicate that children living below poverty are less likely to experience successful reading transitions than their above-poverty peers. However, children in the below-poverty group who began kindergarten with at least early phonological processing experienced transition probabilities similar to their above-poverty peers. Researchers should target and test preschool interventions for their potential efficacy to mediate the effects of poverty on early reading.