A Roth conversion ladder is a tax-planning strategy some taxpayers use to access converted amounts from a Roth IRA before age 59½ without the 10% early-withdrawal penalty, and to create a source of qualified tax-free income in later retirement (subject to the rules described below). With this option, you move money from a traditional IRA or other pre-tax retirement account to a Roth IRA on your own schedule. Roth conversions are taxable events in the year of conversion and are irrevocable.
Let's walk through the Roth conversion ladder step-by-step so you understand how it works and when may or may not be appropriate for your situation.
What is a Roth conversion ladder?
With a Roth conversion ladder, you move a set amount of money from a tax-deferred retirement account — like a traditional IRA or 401(k) — into a Roth IRA each year. The converted amount is generally included in your taxable income for the year of conversion at ordinary income tax rates. These scheduled conversions create a "ladder," and each one has its own five-year clock.
You can withdraw the converted amount (the portion of each conversion that was taxable when converted) after five years without the 10% additional tax penalty if you're under age 59½. Once you reach 59½, the 10% additional tax on withdrawals of converted amounts no longer applies, even if a specific conversion hasn't met its five-year mark. State tax treatment may differ from federal treatment and is not addressed here.
Your earnings follow a different rule. They become eligible for tax-free qualified distribution only when you're 59½ or older (or another qualifying event applies, e.g., death, disability, or a first-time home purchase up to the statutory limit) and your first Roth IRA has been open for at least five years (the five-tax-year period beginning with the first tax year for which a contribution was made to any Roth IRA owned by you).
There's no IRS upper age limit for making Roth conversions. Whether you're in your 50s, 60s, or 70s, you can still move traditional IRA funds into a Roth IRA. But you'll pay federal income taxes and, in most states, state income taxes in the year you convert. A conversion may also push you into a higher marginal tax bracket, cause a portion of Social Security benefits to become taxable, trigger Medicare Part B and Part D IRMAA surcharges two years later, and reduce or eliminate ACA premium tax credits.
If you hold pre-tax amounts in any traditional, SEP, or SIMPLE IRA, the IRS aggregates all such IRAs when determining how much of a conversion is taxable. As a result, a conversion of "after-tax" amounts (for example, from a nondeductible contribution) will generally be partly taxable in proportion to the pre-tax balance across all of your non-Roth IRAs, not tax-free. Employer plan (401(k)) balances are not aggregated with IRAs for this purpose.
Example of a Roth conversion ladder
Say you decide to move $20,000 into your Roth account each year for five years:
• In Year 1, you convert $20,000. You can withdraw that $20,000 conversion amount in Year 6 without the 10% additional tax if you are still under 59½; earnings on that amount remain subject to the qualified-distribution rules.
• In Year 2, you convert another $20,000, and that conversion amount becomes accessible (under the same rule) in Year 7.
• In Year 3, you convert $20,000 again. It becomes available in Year 8.
This pattern repeats for Years 4 and 5. By Year 6, one "rung" becomes available every year ($20,000 annually). This creates a recurring annual amount that can generally be withdrawn without the 10% early-withdrawal penalty, provided each rung has satisfied its five-year holding period. Withdrawals of earnings remain taxable and subject to the 10% penalty until the qualified-distribution requirements are met.
This example is illustrative only. Actual tax outcomes depend on your marginal bracket, state tax rules, and other income.
The five-year rule explained
The IRS five-year rule is a key part of a Roth conversion ladder. Two separate five-year rules apply: (a) a per-conversion five-year rule that governs the 10% early-withdrawal penalty on the taxable portion of a conversion withdrawn before age 59½, and (b) a five-tax-year rule that governs when earnings can be withdrawn tax-free as a qualified distribution. Under rule (a), each conversion starts its own five-year timeline before the converted amount can be withdrawn without the 10% additional tax if you are under 59½.
If you're under 59½ and take money out before the five-year period ends, you could face a 10% early-withdrawal.additional tax on the taxable portion of the conversion, in addition to any ordinary income tax that may apply. Staggering conversions is intended to keep each rung of your ladder stays penalty-free at the intended withdrawal date, but does not eliminate the tax cost of each conversion in the year it is made.
Potential benefits — and trade-offs — of a Roth conversion
A Roth IRA conversion can offer several tax-planning benefits, but each comes with trade-offs. Whether the strategy is appropriate depends on your individual facts and circumstances.
Qualified tax-free withdrawals (subject to conditions)
Once you reach age 59½ and the Roth IRA has been open for at least five tax years, withdrawals of both contributions/converted amounts and earnings are generally treated as qualified distributions and are not subject to federal income tax. You won't owe federal income tax on that money since it's now considered a qualified distribution. State income tax treatment of qualified Roth distributions varies. Whether this strategy actually lowers your lifetime tax depends on your current versus future marginal rates, and on tax-law changes that cannot be predicted.
No required minimum distributions
Unlike traditional IRAs, Roth IRAs aren't subject to required minimum distributions during the original owner's lifetime. Beneficiaries who inherit a Roth IRA are generally subject to distribution rules under the SECURE Act, which for most non-spouse beneficiaries require the account to be fully distributed within 10 years. Instead, your money grows tax-free for as long as you want. You also choose when and how much to withdraw or contribute — giving you more flexibility over your retirement cash flow.
Tax diversification
Adding Roth funds to your retirement portfolio may improve tax diversification. With both taxable and tax-free sources of income, you can be more strategic about your withdrawal schedule. This may reduce your tax burden in some years, but does not guarantee a lower lifetime tax bill and does not eliminate exposure to future changes in tax law.
Estate-planning considerations
An inherited Roth IRA can be a tax-efficient way to pass wealth to heirs, but the rules changed significantly under the SECURE Act (2019) and SECURE 2.0 (2022). Understanding them is important before assuming a Roth IRA will provide unlimited tax-free growth for your beneficiaries.
- When withdrawals are federal-income-tax-free. A beneficiary's withdrawal from an inherited Roth IRA is generally free from federal income tax if the account satisfies the five-tax-year holding period. That clock is measured from January 1 of the tax year in which the original owner first funded any Roth IRA, the beneficiary inherits that clock and does not start a new one. The other requirement for a qualified distribution is met automatically at the owner's death.
- The 10-year rule limits continued growth for most beneficiaries. If the original owner dies after December 31, 2019, the SECURE Act generally requires most non-spouse beneficiaries to fully distribute the inherited Roth IRA by December 31 of the tenth calendar year after the year of death. For inherited Roth IRAs specifically, no annual minimum distributions are required during years 1 through 9, the beneficiary can take money out on any schedule, so long as the account is emptied by the end of year 10. This 10-year cap shortens the period of continued tax-free growth compared with the pre-2020 "stretch" treatment.
- Some beneficiaries can still stretch distributions over life expectancy. "Eligible designated beneficiaries" (EDBs) are exempt from the 10-year rule and may take distributions over their own life expectancy. EDBs include:
- The account owner's minor children (only until they reach the age of majority, generally age 21 under SECURE 2.0, after which the 10-year rule begins);
- Individuals who are disabled or chronically ill under the applicable Internal Revenue Code definitions; and
- Any individual who is not more than 10 years younger than the account owner (for example, a sibling or partner close in age).
- Surviving spouses have the most options. A surviving spouse can treat the inherited Roth IRA as their own (a "spousal rollover"), which is usually the most favorable choice because there are no lifetime required minimum distributions on the surviving spouse's own Roth IRA and the account can continue to grow tax-free for the rest of the surviving spouse's lifetime. A surviving spouse can also remain as a beneficiary under the beneficiary rules, or for account owners dying after December 31, 2023 elect to be treated as the deceased spouse for required-minimum-distribution purposes.
- Estate and inheritance tax may still apply. A Roth IRA is included in the original owner's estate for federal estate tax purposes, and may also be subject to state estate or inheritance tax in states that impose one. The federal estate tax exemption is currently high (approximately $14 million per person for 2026), so most estates are not affected federally. However, roughly 17 states impose an estate or inheritance tax at meaningfully lower thresholds.
Because federal, state, and local tax rules interact, and because the SECURE Act rules can produce very different outcomes for different beneficiaries, consult a qualified tax professional or estate-planning attorney before finalizing beneficiary designations or taking distributions from an inherited Roth IRA.
How to build your Roth conversion ladder
Here's a quick roadmap for building your own Roth conversion ladder. Individual results vary; consult a qualified tax professional before executing conversions.
Assess your retirement income gap
Start by estimating how much income you need in early retirement. Compare that to how much you expect to receive from Social Security benefits, pensions, or part-time work. The difference between those numbers is your income gap. Understanding this gap helps you figure out whether a Roth conversion ladder can cover it. It also helps you estimate how many rungs you'll need to support your spending until other income sources become available.
Determine annual conversion amounts
Decide how much to convert based on your income gap. Some investors use the same amount each year, while others adjust for income or tax changes. Make sure to convert enough to cover future withdrawals without pushing yourself into a higher tax bracket. Moving too much in a single year can increase your marginal tax rate on the conversion, cause a portion of Social Security benefits to become taxable, trigger Medicare Part B and Part D IRMAA surcharges (typically two years later), reduce or eliminate ACA premium tax credits, and increase state income tax liability.
Monitor tax brackets
Before making a conversion, review your expected income for the year to determine which marginal tax bracket the converted amount will fall into. Many taxpayers choose to convert during lower-income years. For example, in early retirement before Social Security and required minimum distributions begin to have the conversion taxed at a lower marginal rate. Federal individual income tax rates are governed by the Internal Revenue Code as amended by the Tax Cuts and Jobs Act of 2017 and the One Big Beautiful Bill Act of 2025, which permanently extended the seven-bracket rate structure (10%, 12%, 22%, 24%, 32%, 35%, and 37%) with annual inflation adjustments. Because tax law and inflation-adjusted thresholds can change, verify the current-year brackets, standard deduction, and any applicable OBBBA provisions before executing a conversion. Consult a qualified tax professional regarding your specific situation.
Execute conversions
Transfer the amount you want from your traditional IRA into your Roth IRA around the same time each year so your ladder stays organized. Set aside enough non-retirement funds to pay the tax owed on each conversion. Paying the tax from the amount converted generally reduces the funds available to grow tax-free inside the Roth and, if you are under 59½, may itself trigger the 10% early-withdrawal penalty on the withheld amount.
Track five-year clocks
Keep a record of when each conversion becomes available. Tracking these five-year clocks helps you tap into your savings at the right time and keeps your Roth conversion ladder working as planned.
Roth conversion strategies
Here are several common strategies that help you plan conversions.
Steady-state ladder
A steady-state ladder converts the same amount every year. It creates a regular pattern that makes planning your taxes easier. Each rung becomes available in a predictable order, which helps with long-term budgeting.
Back-loaded ladder
A back-loaded Roth conversion ladder starts with smaller conversions and then ramps up later. This approach is helpful if you expect your income to drop in early retirement. You can minimize taxes early on and make larger conversions when your income declines.
Market-timed conversions
With the market-timed method, you convert when the stock market is down. A lower account value leads to a smaller tax bill because you're converting fewer taxable dollars. If the market recovers after the conversion, that rebound growth happens inside the Roth IRA, where future earnings can compound tax-free. Market-timing strategies are inherently uncertain. There is no guarantee that a market decline will be followed by a recovery, or that any recovery will occur within a time frame that produces a net tax benefit after paying the conversion tax.
When to consider a Roth conversion
There's no perfect time to start Roth IRA conversions. Generally, the strategy relies on converting at least five years before you plan to withdraw the converted amount, so that each rung satisfies the five-year rule. This matters if you plan to withdraw before age 59½. Consider converting during years your income is lower to stay in a favorable tax bracket. Many investors also consider converting in down markets, when Roth IRA account values — and the taxes on conversions — are temporarily reduced, although future market movements are not predictable.
A Roth conversion ladder is not appropriate for everyone. It may be less beneficial, or counterproductive, if: (i) you expect your marginal tax rate to be lower in retirement than today; (ii) you must pay the conversion tax from the funds being converted; (iii) you rely on Affordable Care Act premium tax credits or are near an Income-Related Monthly Adjustment Amount threshold; (iv) you hold significant pre-tax balances across multiple IRAs that make the pro-rata rule unfavorable; or (v) you may need converted funds within five years of a conversion and are under age 59½.
Invest in your financial future with Gainbridge℠
A Roth IRA conversion ladder is one tax-planning strategy among several that some taxpayers use to manage retirement income. Whether it is appropriate depends on your facts and circumstances, including the considerations described above. Whether you plan to retire early or you just want to grow your retirement savings, Gainbridge℠ can help you build a well-funded future.
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Important considerations before using an annuity within a Roth IRA
Holding an annuity inside a Roth IRA or other tax-qualified account is a decision that requires careful evaluation. Because a Roth IRA is already tax-advantaged, an annuity held inside a Roth IRA does not provide any additional tax deferral beyond that of the Roth IRA itself. An annuity may still be appropriate for a Roth IRA where the annuity's contractual features (for example, guaranteed minimum interest rates on a fixed annuity, or lifetime income options) are the reason for the purchase, but the purchaser should understand the features and costs of the annuity before purchase.
Annuities are long-term insurance products. They generally impose surrender charges and market value adjustments on withdrawals during the surrender charge period, and taxable amounts withdrawn before age 59½ may be subject to a 10% federal tax penalty. Purchases made without a recommendation are self-directed.
This article is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. The Gainbridge℠ digital platform provides informational and educational resources intended only for self-directed purposes.
Annuities are insurance products, not bank deposits. They are not insured by the FDIC or any federal government agency, are not guaranteed by, and are not obligations of, any bank or bank affiliate, and are not a condition of any banking service. All guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Product availability and features vary by state.
Federal tax rules discussed in this article are based on our understanding of current law and are subject to change. Tax treatment of Roth conversions, distributions, and inherited Roth IRAs is governed by the Internal Revenue Code (including IRC §§72(t), 408, 408A, and 401(a)(9)) and IRS Publications 590-A and 590-B. State income tax treatment may differ from federal treatment. Neither Gainbridge℠ nor Gainbridge Life Insurance Company provides tax or legal advice. Consult a qualified tax professional or attorney regarding your specific situation before making a Roth conversion or purchasing an annuity.
Withdrawals of taxable amounts from a Roth IRA or annuity are subject to ordinary income tax and, if taken before age 59½, may be subject to a 10% federal tax penalty. Withdrawals from an annuity may also be subject to surrender charges and market value adjustments during the surrender charge period.
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