The Roth conversion ladder, explained

The IRS rules it relies on

• Each conversion has its own 5-year period. IRS Publication 590-B: a separate 5-year period applies to each conversion. The period starts on the first day of the tax year of the conversion, so a conversion in any month of 2026 is clear on January 1, 2031.
• Withdrawals come out in a set order. Regular contributions first, then conversions, oldest first, then earnings. Contributions can come out at any time; earnings come last.
• The conversion is taxed in the year you make it. The converted amount counts as ordinary income.

A five-year example

Someone retires at 45 with $400,000 in a taxable account and $800,000 in a traditional IRA, spending $40,000 a year. They convert $40,000 each year starting at 45:

The taxable account pays for the first five years: $200,000 at $40,000 a year. From 50 each year's spending comes from the conversion made five years earlier. The $40,000 conversions are taxed as income, at rates that are often low with no salary.

What it costs and what to watch

• Income tax on each conversion. It is paid from other money, ideally, so the whole conversion stays in the Roth.
• Health insurance. Conversions raise your income for the year, which can reduce Marketplace premium tax credits.
• The five-year gap. You need another source for the first five years: a taxable account, Roth contributions, or 72(t) payments.

Questions people ask

Is a Roth conversion ladder worth it?

For early retirees with most of their savings in traditional accounts, it is one of the few ways to reach that money before 59½ without the 10% additional tax or a fixed 72(t) schedule. The cost is the income tax on each conversion and the five-year wait.

What is the biggest Roth conversion mistake?

Withdrawing a conversion before its own 5-year period ends, which brings back the 10% additional tax on that amount before 59½. Another is paying the tax out of the conversion itself, which shrinks the ladder.

What is a 5 year Roth conversion ladder?

The same strategy: each rung is one year's conversion, and each becomes available five tax years later. Five years of conversions build five rungs.

Related

Bridging to 59½ compares the options. The retire early calculator shows how many bridge years you need.

Sources

• Internal Revenue Service, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
• Internal Revenue Service, Topic no. 557, Additional tax on early distributions from traditional and Roth IRAs.

Keep reading

• The rule of 55, explained

  How the IRS exception for leaving a job at 55 works, which accounts it covers and what it does not do.

• 72(t) SEPP rules, explained

  The IRS methods, the rate cap, the 5-year-or-59½ rule and what breaking the schedule costs.

• Health insurance before Medicare

  COBRA, the Marketplace, a spouse's plan or part-time work: the options until 65 and how they fit a retirement budget.