Roth Conversion Ladder: A $40,000 Rung Costs $4,000 to Touch Early and $0 After Five Years

A Roth conversion ladder moves money from a traditional IRA to a Roth IRA a slice at a time, so that each slice (a rung) can be spent after five years without the 10% additional tax that hits most withdrawals before 59½. The rule behind it is short, but the way it is usually described leaves out two things the IRS text makes plain: when exactly the five years end, and what happens if you touch a rung early. This guide runs both through the same engine as the Roth IRA withdrawal calculator, for a single filer who is 45 in 2026 and converts $40,000 a year.

The five years end on January 1, not five years from the day you convert

Each conversion has its own five-year period, and it starts on the first day of the tax year in which you converted (Publication 590-B; 26 CFR 1.408A-6, Q&A 5; 26 U.S.C. 408A(d)(3)(F)). A conversion made on December 30, 2026 is therefore free of the 10% tax on January 1, 2031, a little over four years later, exactly like one made on January 2, 2026. A distribution is inside the window if it happens in the year of the conversion or any of the four years after. This is a different clock from the one that makes earnings tax-free, which starts with your first Roth contribution of any kind and also needs you to be 59½ (or disabled, or the first-home exception). The questions on the calculator page explain both.

What a $40,000 withdrawal costs, year by year

The ladder here converts $40,000 every year from 2026. The table asks one question per row: if you needed $40,000 in that year, and had not touched the account before, what would the withdrawal cost? The money always comes from the oldest rung, because conversions come out first-in, first-out and, inside a conversion, the part you paid tax on comes out before any part you did not.

The oldest rung is the 2026 one every time, so it is the first to become free: in 2031, when you are 50. The 2027 rung is free in 2032, and so on. Because each year's rung is a separate five-year clock, a ladder is a conveyor belt: once it is running, one rung reaches its date every year.

Why it costs the same as an early withdrawal, and when it costs less

Take $40,000 out of a traditional IRA at 45 with no other income and you pay $2,620 of income tax and $4,000 of additional tax: $6,620 (the early withdrawal calculator gives the same figure). Convert the $40,000 and take it out in the same year and the bill is the same $2,620 of income tax, paid at conversion, plus the same $4,000. That is the effect of the rule: the 10% tax on a conversion applies only to the part you were taxed on, so a conversion taken out early costs no less than an early withdrawal would have. The exceptions to the 10% tax (disability, a first home up to $10,000, higher education and the rest of the Form 5329 list) apply to a conversion withdrawal as they do to any other early distribution (26 CFR 1.408A-6, Q&A 5).

What the ladder adds is time. Convert now, wait five calendar years, and the $4,000 disappears. How much that is worth depends on how long you can leave a rung alone, which is the next table.

Convert-and-spend against a five-year bridge

Two ways to live on $40,000 a year for ten years, both converting $40,000 a year, both at 45 in 2026, 2026 brackets used for every year as a stand-in:

A bridge of four years is one year short: every withdrawal is still inside its rung's window, which is the point of the January 1 rule above. With five years the 10% tax is $0, a saving of $40,000 over the ten years, and the income tax on the conversions ($26,200) is the same in all three rows. The price is the bridge itself: for the first five years of the plan the $40,000 a year (five times that, $200,000, before any growth) has to come from somewhere other than the Roth IRA. Savings in a taxable account or cash are the usual source; what they cost in tax and what else they could have done is outside this arithmetic.

Details that change the numbers

• Part of a rung. Taking $10,000 out of the 2026 rung in 2028 costs $1,000: the 10% applies only to what you take, not to the rung. The rest stays where it is and keeps its date.
• Regular contributions stand in front of the line. If the account already holds $30,000 of regular Roth contributions, a $40,000 withdrawal in 2028 takes those first, so only $10,000 comes from a rung and the 10% tax is $1,000 instead of $4,000. Contributions are tax-free and penalty-free at any age, so they act like a ready-made bridge.
• Growth is not on the same clock. If the 2026 rung has grown to $46,000 by 2031 and you take all of it out at 50, the $40,000 you converted is free, but the $6,000 of growth is earnings: it is taxed as income (nothing here, because it is inside the $16,100 standard deduction when you have no other income) and the 10% tax still applies, $600. Earnings come out last and only escape the 10% tax from 59½ or under an exception.
• The ladder stops mattering at 59½. From that age the 10% tax does not apply to any withdrawal, including a conversion you made last month. Starting a ladder at 45 means about 14.5 years in which the dates matter.
• Keep the records. The IRS works the order out from your own Forms 8606 (the part of each conversion you were taxed on is line 18 of the year's form), so a conversion without a form on file is a conversion you cannot prove the date or the taxed part of.

What this guide leaves out

The income tax planning of the conversions themselves: how large a rung to convert, what filling a bracket does, and what the added income does to state tax, to premium tax credits for health insurance and to Medicare premiums two years later (see the IRMAA guide). Market returns, inflation and the future of the tax brackets; the 2026 brackets and standard deduction stand in for every year. A pro-rata calculation if you also hold other traditional IRA money (the conversions here are assumed to have no never-taxed part). Roth 401(k) rollovers and Roth SIMPLE IRAs. Estimates, not tax advice: the amounts on your own Forms 8606 and 5329 decide, and a tax professional can check a plan before you convert.