Saving and investing
How Does a Roth Conversion Ladder Work?
A Roth conversion ladder moves money from a traditional 401(k) or IRA into a Roth IRA a little each year. You pay income tax on each conversion, and five tax years later that converted amount can be withdrawn without the 10% early-withdrawal penalty, even before age 59½. In 2026 a single filer with no other income can convert about $66,500 a year and pay only about $5,800 of federal tax.
Last updated: October 20, 2026
The rule that makes it work
Withdrawals from a Roth IRA come out in a fixed order: your regular contributions first, then converted amounts (oldest conversion first), then earnings. Each conversion has its own five-year clock that starts on January 1 of the year you convert. If you are under 59½ and withdraw a converted amount before its clock runs out, the 10% additional tax applies to it. After five years, that conversion comes out penalty-free, and because you already paid tax on it, it is also tax-free.
How the ladder works, step by step
- Move the money to a traditional IRA. After leaving an employer, roll the 401(k) into a traditional IRA (or convert inside the plan if it allows).
- Convert one year of spending each year. In year 1 you convert the amount you will need to live on in year 6. Repeat every year.
- Pay the tax in the conversion year. The conversion is ordinary income. Converting in low-income retirement years keeps it in the 10% and 12% brackets.
- Withdraw each rung after five tax years. From year 6 on, each year's withdrawal is a conversion that has finished its waiting period.
How much to convert in 2026
Converting up to the top of the 12% bracket with no other income
| Filing status | Standard deduction | Top of 12% bracket (taxable) | Conversion | Federal tax |
|---|---|---|---|---|
| Single | $16,100 | $50,400 | $66,500 | $5,800 |
| Married filing jointly | $32,200 | $100,800 | $133,000 | $11,600 |
That is an effective federal rate of about 8.7% for a single filer and 8.7% for a married couple, often far below the rate saved when the money went into the 401(k).
Bridging the first five years
The ladder only pays out from year six, so you need money to live on before then. Common sources: a taxable brokerage account, cash savings, your original Roth IRA contributions (always withdrawable tax- and penalty-free), the Rule of 55 if you leave your job in or after the year you turn 55, or substantially equal periodic payments under section 72(t).
Things that can trip you up
- Health insurance subsidies: conversions raise your income, which can reduce Affordable Care Act premium tax credits.
- State income tax: most states tax conversions too.
- Medicare premiums: large conversions from age 63 on can raise Medicare Part B and D premiums two years later.
- Earnings: growth on converted money is not penalty-free until you are 59½ and your first Roth account is at least five years old.
Key takeaways
- Each Roth conversion becomes penalty-free to withdraw five tax years after the conversion year.
- Convert about one year of spending annually, five years ahead of when you need it.
- In 2026 a single filer can convert about $66,500 a year for roughly $5,800 of federal tax.
- Plan a separate source of money for the first five years.
- Watch ACA subsidies, state tax, and Medicare premium thresholds.
Frequently asked questions
Is a Roth conversion taxable?
Yes. The converted pre-tax amount is added to your ordinary income for that year. The 10% early-withdrawal penalty does not apply to the conversion itself.
Can I undo a Roth conversion?
No. Recharacterizing conversions has not been allowed since 2018, so plan the amount carefully.
Does the five-year clock start on the conversion date?
No. It starts on January 1 of the year of the conversion, so a December conversion still counts from January of that year.
Sources: IRS - Roth IRAs, IRS Publication 590-B