Roth Conversion Ladder Modeler

What is a Roth Conversion Ladder?

A Roth Conversion Ladder is a strategy primarily used by early retirees (or anyone expecting a period of low income) to access funds saved in Traditional (pre-tax) retirement accounts like a 401(k) or IRA efficiently, and often at a lower tax rate.

How It Works

1. The Conversion: You move money from a Traditional account to a Roth IRA. This is a taxable event; the amount converted is treated as ordinary income for that year.
2. The "Ladder": Instead of converting everything at once (which could push you into a high tax bracket), you convert smaller amounts over several years.
3. The 5-Year Rule: Crucial for early retirees: converted funds generally cannot be withdrawn penalty-free until 5 years after the conversion year (if under age 59.5). By starting the ladder early, you ensure funds become accessible when needed.

The Goal: Tax Optimization

The main benefit is optimizing your tax burden. During low-income years, your tax rate is likely lower than during your peak earning years or later in retirement.

This modeler helps you determine the optimal amount to convert by identifying how much "space" you have left in your desired tax bracket. It calculates the required Adjusted Gross Income (AGI) needed so that your Taxable Income (AGI minus deductions) lands exactly at the top of your target bracket. By "filling up" these lower brackets (e.g., 10% or 12%) with conversions, you pay less tax on that money than if you withdrew it later. Want to visualize your brackets? Use our Tax Bracket Modeler.

Important Considerations

• Cash for Taxes: You must pay the taxes on the conversion using funds *outside* of the retirement account to avoid early withdrawal penalties (if under 59.5). This model shows the tax liability but doesn't account for the source of the cash.
• Income Impact: Conversions increase your Adjusted Gross Income (AGI). This can affect eligibility for things like Affordable Care Act (ACA) health insurance subsidies or trigger higher Medicare premiums (IRMAA). Check our IRMAA Optimizer.
• Future Tax Rates: This strategy assumes current tax rates are favorable. Note that current individual tax rates are set to expire after 2025 unless extended by Congress.