How a Roth conversion ladder works
Money in a Traditional 401k or IRA normally has a 10% penalty if you take it out before 59½. A Roth conversion ladder gets around that:
- Each year after you stop working, move (“convert”) part of your pre-tax balance into a Roth IRA. The converted amount is taxable income that year.
- Each conversion has its own five-year clock. Once it’s been five tax years, that amount can be withdrawn tax-free and penalty-free.
- Convert every year, and from year six a new “rung” opens each year.
How much to convert
With little other income in early retirement, conversions can be taxed very lightly. In 2026:
| Strategy | Single | Married filing jointly | Federal tax |
|---|---|---|---|
| Up to the standard deduction | $16,100 | $32,200 | $0 |
| Fill the 10% bracket | $28,500 | $57,000 | $1,240 / $2,480 |
| Fill the 12% bracket | $66,500 | $133,000 | $5,800 / $11,600 |
Assuming no other taxable income. Federal tax only; your state may tax conversions.
The five-year gap
The catch is the start: nothing is available from the ladder for the first five years. You need other money to live on and to pay the conversion taxes. Usually that’s a taxable brokerage account (often taxed at 0% on long-term gains in early retirement) plus any Roth IRA contributions, which you can withdraw anytime. This calculator shows whether yours are enough.
Watch your health insurance subsidy
Conversions count as income for ACA marketplace subsidies. Converting a lot can shrink or eliminate your subsidy, and in 2026 there’s no subsidy at all above 400% of the poverty line. The full FIRE calculator estimates your subsidy; balance it against your conversion plan.
Common questions
Is a Roth conversion ladder worth it?
For early retirees with most of their savings in pre-tax accounts, usually yes. It lets you reach that money before 59½ while paying little tax, because conversions happen in years with little other income.
Can I withdraw the growth on converted money after five years?
Not penalty-free before 59½. After five years you can take out the converted amount itself; earnings stay in the account until 59½.
What if I retire at 55?
If you leave your job in or after the year you turn 55, the Rule of 55 may let you use that employer’s 401k without penalty, which can replace the ladder entirely.
Estimates for education only, not financial or tax advice. 2026 tax-year rules and limits; check the details with your plan provider or a tax professional.