The Roth conversion ladder, drawn rung by rung so nobody falls off

By Tom, CPA · Updated October 25, 2026

TL;DR: A Roth conversion ladder converts pre-tax IRA money to a Roth IRA each year after you retire. Each conversion's principal can be withdrawn without the 10% additional tax once its own five-year period ends (January 1 of the conversion year plus five years). You need about five years of spending from other sources while the first rungs season.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The Roth conversion ladder is the FIRE community's favorite piece of tax origami: fold pre-tax 401(k) money into a Roth IRA in low-income years, wait five years, and pull it back out without the 10% early-withdrawal tax. It sounds like a loophole. It's actually just the ordering rules working as designed, with a five-year waiting room.

The concept is easy. The execution is a calendar puzzle, and the most common failure isn't tax law, it's running out of money in years one through five. Let's draw the ladder rung by rung, with 2026 numbers, so you can see when each step becomes usable.

CPA Warning Label: Each conversion has its own five-year clock, and the clock is about the 10% additional tax, not income tax. Withdraw a conversion before its clock runs out and before 59½, and the taxable part of that conversion can be hit with the 10%.

Year 0: setup

Year 0 is your last working year, or the year you retire. Typical checklist:

• Roll the 401(k) to a traditional IRA (or leave it in the plan if you'll use the Rule of 55). Conversions are easiest from an IRA. See IRA rollovers.
• Open a Roth IRA if you don't have one. Even a tiny contribution starts the Roth IRA's own five-year clock for tax-free earnings.
• Count your bridge money: taxable brokerage, cash, Roth IRA contributions, HSA receipts, and any part-time income. You need five years of spending from these.
• Decide whether to convert in year 0. If you retire in January, year 0 might be a low-income year and a great first rung. If you retire in December with a full salary, converting in that year usually means high brackets.

Years 1–5: funding life while rungs season

During years 1 through 5, the ladder is under construction. You live on:

1. Taxable accounts, selling lots with gains taxed at long-term capital gains rates, which may be 0% for part of your income under current law.
2. Roth IRA contributions (not earnings), which come out first and are always tax- and penalty-free. See ordering rules.
3. Cash and maybe I bonds after 12 months.
4. Other bridges: a 457(b), Rule of 55, or 72(t) payments.

Starting in year 6, the first rung (the year-1 conversion) is seasoned, and you can withdraw its principal without the 10% additional tax. From then on, one rung matures each year.

Conversion amounts per year

Conversions are taxed as ordinary income. The goal is usually to convert enough to cover spending five years from now while staying inside a target bracket. For 2026 (IRS IR-2025-103):

For single filers: standard deduction $16,100, 12% bracket ends at $50,400 of taxable income, so about $66,500 of gross income fills it.

Remember other income counts: dividends, interest, capital gains and any part-time wages stack with conversions. And for ACA marketplace coverage, conversion income increases MAGI, which can reduce premium tax credits. Converting less and keeping subsidies sometimes beats converting more.

Illustration: a 10-year ladder

Illustration (assumptions): Larry and Fran retire at the end of 2026 at ages 45 and 44. They spend $60,000 a year, have $350,000 in a taxable account and $900,000 in traditional IRAs, and file jointly. Inflation and returns ignored for clarity.

The tax math: $60,000 minus the $32,200 standard deduction leaves $27,800 of taxable income: 10% of $24,800 ($2,480) plus 12% of $3,000 ($360) = $2,840, an average rate under 5%. Five years of spending from the taxable account is $300,000, and the account's capital gains are extra income to plan around (some may sit in the 0% bracket). They have a $50,000 cushion for surprises.

Real life adds inflation, market returns, taxes on gains, and health insurance costs, so treat this as the skeleton, not the plan.

Tracking each tranche

Each conversion has its own five-year period starting January 1 of the year of the conversion. A conversion done on December 31, 2027 is seasoned January 1, 2032, the same as one done on January 2, 2027. (That's why many people convert late in the year, once they know their income.)

Keep a simple ledger:

Roth IRA withdrawals follow ordering rules: regular contributions first, then conversions in order (oldest first, taxable part before nontaxable), then earnings. Form 8606 Part III reports nonqualified distributions. Your custodian won't track conversion tranches; you must. Once you reach 59½, the conversion clocks stop mattering for the 10%.

What goes wrong

• Bridge shortfall: spending more than planned in years 1–5 forces early withdrawals from unseasoned rungs or pre-tax accounts. A bridge plan should include a buffer.
• Pro-rata surprises: after-tax basis in IRAs is spread across all IRAs at conversion, which changes the taxable portion. See the pro-rata rule.
• ACA subsidy loss: large conversions raise MAGI and can shrink marketplace subsidies.
• Bad markets early: selling taxable investments in a crash hurts. Some people keep 1–2 years of cash at the start.
• Confusing the clocks: the Roth IRA's own five-year rule (for tax-free earnings) is separate from each conversion's five-year period. See five-year rules.
• State taxes: conversions are taxable in most states with an income tax. Moving before starting the ladder can matter.
• Recharacterization isn't available: since 2018, a Roth conversion can't be undone, so convert based on the income you know, not hope.

An annual routine for each rung

1. October or November: total your year-to-date income: dividends, interest, realized gains, part-time wages. Estimate the rest of the year.
2. Pick the conversion amount that fills your target bracket, minus a cushion for surprise dividends or capital gain distributions in December.
3. Check ACA effects if you buy marketplace coverage: MAGI drives the premium tax credit, and a conversion can change next spring's reconciliation.
4. Convert before December 31. Custodians get busy in late December; give yourself a week of slack.
5. Pay the tax from outside the IRA. Withholding from the conversion before 59½ counts as a distribution and may be hit with the 10%. Use estimated payments or cash.
6. Update your ledger with the amount, date and seasoning date. Save the Form 1099-R and Form 5498.

Done consistently, the routine takes an hour a year. Skipped, it turns into a forensic accounting project at 59, usually during the same month you're trying to enjoy retirement.

Ladder vs alternatives

The ladder works best for early retirees with big pre-tax balances, modest spending, and enough taxable or Roth contribution money for five years. If your bridge is thin, a 72(t) plan can produce penalty-free income right away, at the cost of rigidity. If you leave your job in or after the year you turn 55, the Rule of 55 may be simpler. Many people combine them: Rule of 55 or 72(t) for the first years, conversions in the background to manage future RMDs. For a quick schedule, try the Roth ladder planner.