Roth Conversion Ladder: How It Works

Considering an early retirement or want to potentially lower the amount of taxes you’ll have to pay on your retirement savings?

A Roth conversion ladder is a tax-efficient strategy that allows you to access certain funds before age 59 ½ without paying early withdrawal penalties.

What's more, while down markets like we're starting to see in 2025 can be stressful for savers, lower portfolio values actually represent an opportunity for kicking off a conversion ladder.

What is a Roth conversion ladder?

A Roth conversion ladder involves taking money from a tax-deferred retirement account, such as a traditional IRA or employer-sponsored retirement account, and moving it into a Roth IRA over several years. An individual, one-time conversion is simply called a Roth conversion, but the practice of strategically converting your money over a longer period of time is what gives a Roth conversion ladder its name.

What makes conversion ladders appealing is that while there are limits on how much you can contribute directly to a Roth IRA, there’s no limit on how many conversions you can do or the amount of money you can convert.

Roth conversion ladders can make sense for people who want access to tax-free funds throughout their entire retirement, as well as people who are considering early retirement or who anticipate being in higher tax brackets later on in life.

» Need to back up? How Roth conversions work

How do Roth conversion ladders work?

A Roth conversion ladder is made up of a series of Roth conversions completed over several years. Here’s a step-by-step process of what it looks like.

1. Convert a portion of your tax-deferred retirement account to a Roth IRA

The initial step of planning a Roth conversion ladder is considering how much in total you want to convert into a Roth IRA, and how to break that amount up into yearly conversions.

Which tax bracket you fall into each year may also play a factor in how much you convert, as the money you convert will be considered taxable income for the year. Converting too much might push you into a higher tax bracket and increase your overall tax burden.

For example, a single filer whose highest tax bracket in 2025 is 22% may want to pay special attention to the maximum income limit for that bracket — $103,350.

If they convert too much money, their income can exceed this threshold, which means they might pay a higher rate of 24% on any of the excess.

» Learn more: See the 2025 tax brackets

2. Mind the five-year waiting period

Each conversion needs to stay in the Roth IRA for at least five years before you can take it out without incurring an early withdrawal penalty. This is how the “laddering” of a Roth conversion ladder works. Because of this waiting period, you should begin a Roth conversion ladder at least five years before you plan to withdraw funds.

3. Repeat the process annually

Each year, you convert another portion of pretax retirement funds so that in subsequent years, more of the converted funds are available to you. At age 55, you can stop making conversions since in five years, you’ll be able to fully tap into your Roth IRA at 59 ½ .

4. Withdraw your conversion tax-free

Five years after the first conversion, you can withdraw the funds from that specific conversion penalty-free from your Roth IRA. If you continue making annual conversions, more funds will become available to you each year.

Example of a Roth conversion ladder

Who should make use of a Roth conversion ladder?

Roth conversion ladders are most helpful to two groups of people: those who have most of their money in traditional IRAs and 401(k)s and expect to be in a higher tax bracket in the future, and those who want to retire before age 59 ½.

Because tax-deferred accounts require you to pay taxes once you make withdrawals, moving those funds gradually to a Roth IRA now could mean saving on taxes in retirement, says Renee Collins, a certified financial planner and certified public accountant at Retire Ready Inc., a financial planning firm in Chicago. More of your money receives tax-free growth, and you can make tax-free withdrawals of converted Roth IRA contributions after five years.

Using a Roth conversion ladder is also a form of tax diversification, which is when investors use a mix of taxable and tax-free accounts to help lower the tax they pay when they retire.

“Right now, what I find with most clients is that there is no tax diversification,” Collins says. “And most clients don't plan for taxes, so they just assume that they're going to be in a lower tax bracket in retirement.”

For those who want to retire early, a Roth conversion ladder can help them access tax-free withdrawals of their contributions (but not earnings) before age 59 ½, as long as the money has been in the account for five years. Keep in mind that for some people, especially those who don’t plan to retire early, Roth conversions can create additional tax burdens in the years they are completed.

Benefits of a Roth ladder during down markets

Sometimes your retirement savings may take a hit because of drops in the market.

But one upside to a down market for retirement investors is that if you convert some of your money from a tax-deferred retirement account into a Roth while the market is down, you’d potentially pay less than if your portfolio hadn’t taken a hit, says Ali Swart, a CFP at Waldron Private Wealth, based in Oakdale, Pennsylvania.

“The more important thing is that you are getting that money into a completely tax-free vehicle with the Roth IRA,” she says. “You're converting a lower amount, and we all know that the markets will eventually rebound, and all of that growth is going to be captured tax-free.”

Bottom line

Although Roth ladders can help you save money on taxes, they can also lead to you paying more in taxes if you aren’t careful. To ensure a Roth ladder is tax-efficient, you should convert amounts that won’t tip you over into a higher tax bracket.

When doing a Roth ladder, you also want to be mindful of the five-year rule for Roth accounts. Swart says you can do that by keeping track of when you make every conversion.

“You don't want to implement the strategy and then get years mixed up and accidentally incur a 10% early withdrawal because you somehow voided that five years.”