You did everything right:

  • Maxed out your 401(k) contributions for 30 years
  • Got the employer match
  • Enjoyed the tax deduction every year
  • Built a $1.5M traditional IRA/401(k) balance

At age 73, the IRS sends you a letter: “Time to start Required Minimum Distributions.”

Your first RMD: $56,000 (whether you need the money or not)

Combined with your pension and Social Security, you’re now in the 24% federal bracket. You’re paying IRMAA surcharges on Medicare. And your state takes another 5%.

Total tax hit: ~$16,000 per year

On money you didn’t even want to withdraw.

There was a better way. It’s called a Roth conversion ladder, and if you build it right, you can save six figures in lifetime taxes.

What Is a Roth Conversion Ladder?

A Roth conversion ladder is a multi-year strategy where you systematically convert money from traditional IRAs to Roth IRAs during low-income years, paying tax at controlled rates instead of letting the IRS force withdrawals at the worst possible time.

The concept:

  • During years when your income is lower (ages 60-72, before RMDs kick in)
  • Convert traditional IRA money to Roth IRA
  • Pay tax on the conversion at today’s (hopefully lower) rates
  • That money now grows tax-free forever
  • No RMDs on Roth money
  • Tax-free withdrawals in retirement
  • Tax-free inheritance for heirs

It’s called a “ladder” because you do it over multiple years, converting the optimal amount each year based on your tax bracket, rather than trying to convert everything at once.

Why This Matters More Than You Think

The Traditional IRA Time Bomb

Traditional IRAs and 401(k)s are tax-deferred, not tax-free. You WILL pay taxes eventually. The question is: when, and at what rate?

Most people’s default path:

  • Work until 65, contributing to traditional 401(k)
  • Retire at 65-67, low income for a few years
  • Social Security starts at 67-70
  • Pension/annuity income
  • RMDs begin at 73 (or 75 under SECURE 2.0)
  • Highest income years are in retirement (ages 73-85)
  • Pay maximum taxes when you have the least control

The Roth conversion path:

  • Work until 60-65
  • Low-income years from 60-72 (before RMDs)
  • Convert traditional IRA money during these years
  • Pay tax at 12-22% brackets (controlled)
  • RMDs at 73 are minimal (most money already in Roth)
  • Retirement income is primarily tax-free
  • Lifetime tax bill reduced by 30-50%

The RMD Acceleration Problem

RMDs aren’t flat - they grow over time as your required distribution percentage increases:

RMD Percentages by Age:

  • Age 73: 3.77% of balance
  • Age 75: 4.07%
  • Age 80: 5.35%
  • Age 85: 6.76%
  • Age 90: 8.77%
  • Age 95: 11.63%

Example with $1M traditional IRA:

  • Age 73 RMD: $37,700
  • Age 80 RMD: $53,500
  • Age 85 RMD: $67,600
  • Age 90 RMD: $87,700

These are minimums - you can always take more, but you can’t take less without penalty.

With proper Roth conversions:

  • Convert $500k during ages 60-72
  • Age 73 traditional IRA balance: $500k instead of $1M
  • Age 73 RMD: $18,850 instead of $37,700
  • Lifetime RMD reduction: ~$300,000+

All that money you didn’t have to distribute? It grew tax-free in your Roth instead.

The Math: Why Conversions Win

Let’s compare two identical people with different strategies:

Person A: No Conversions (Traditional Path)

Starting point at age 60:

  • Traditional IRA: $1M
  • Income: $40k/year (consulting, part-time work)

Ages 60-72: No conversions, live on other income

  • IRA grows to $1.8M by age 73

Age 73-90: RMDs force withdrawals

  • Total RMDs: ~$1.2M
  • Average tax rate on RMDs: 18%
  • Total tax paid: ~$216,000
  • Plus IRMAA surcharges: ~$45,000
  • Total cost: $261,000

Person B: Roth Conversion Ladder

Starting point at age 60:

  • Traditional IRA: $1M
  • Income: $40k/year

Ages 60-72: Convert $70k/year

  • Total conversions: $910k over 13 years
  • Tax paid during conversions: $125,000 (at 12-15% effective rate)
  • Remaining traditional IRA at 73: $90k
  • Roth IRA balance at 73: $1.3M

Age 73-90: Minimal RMDs

  • Total RMDs from remaining $90k: ~$75k lifetime
  • Tax on RMDs: ~$8,000
  • No IRMAA surcharges (income controlled)
  • Total cost: $133,000

Savings: $128,000 over lifetime

Plus:

  • Tax-free growth on $1.3M Roth
  • Tax-free withdrawals as needed
  • Tax-free inheritance for heirs
  • Complete control over taxable income

The Sweet Spot Years for Conversions

The ideal conversion window: Ages 60-72

Why these specific years?

Before Age 60:

  • Usually still working, in peak earning years
  • Already in higher tax brackets
  • Conversions would push you even higher
  • Better to wait for lower-income years

Ages 60-72 (The Golden Window):

  • Early retirement or reduced work
  • Lower earned income
  • Before Social Security (or taking it reduced)
  • Before pension starts (if applicable)
  • Before RMDs at 73
  • Can carefully control taxable income
  • Fill up the 10%, 12%, 22% brackets

After Age 73:

  • RMDs begin, raising your floor income
  • Social Security is maxed out
  • Less room in lower brackets
  • Conversions still possible but less advantageous

The 2025-2026 Super Window:

Remember TCJA expiration? The 12% and 22% brackets exist only through 2025. Post-TCJA, they become 15% and 25%.

This makes 2025 the BEST conversion year for many people:

  • Convert at 12% instead of future 15% (saves 3%)
  • Convert at 22% instead of future 25% (saves 3%)
  • On $100k conversion: save $3,000 in taxes

If you’re in the sweet spot age range RIGHT NOW, 2025 is a gift.

How to Build Your Roth Conversion Ladder

Step 1: Map Your Income Phases

Chart out your expected income year by year from now until age 90:

Example:

  • Ages 60-62: $50k (part-time work)
  • Ages 63-66: $30k (semi-retired)
  • Age 67: $30k + $28k Social Security = $58k
  • Age 70: $30k + $38k Social Security (delayed) = $68k
  • Age 73+: $68k + RMDs

This shows you where the conversion opportunities are (ages 60-66 in this example).

Step 2: Calculate Your Conversion Capacity

How much can you convert each year without pushing into brackets you want to avoid?

2025 Tax Brackets (MFJ):

  • 10%: $0 - $23,200
  • 12%: $23,200 - $94,300
  • 22%: $94,300 - $201,050
  • 24%: $201,050 - $383,900

Example calculation for age 62:

  • Current income: $40k
  • Standard deduction: $29,200
  • Taxable income before conversion: $10,800 (in 10% bracket)
  • Room in 12% bracket: $94,300 - $23,200 = $71,100
  • Remaining room after current income: $71,100 - $10,800 = $60,300

You could convert ~$60k and stay in the 12% bracket

  • Tax on conversion: ~$7,200
  • Effective rate: 12%

Compare that to taking this $60k as an RMD at age 75 when you’re already in the 22% bracket:

  • Tax on RMD: ~$13,200
  • Savings: $6,000 (on just this one year’s conversion)

Step 3: Model Multiple Conversion Scenarios

Don’t just guess - run the numbers:

Scenario A: Aggressive Conversions

  • Convert to top of 22% bracket each year
  • Pay more tax now, but eliminate future RMDs entirely
  • Best if you have cash to pay taxes outside the IRA

Scenario B: Moderate Conversions

  • Fill the 12% bracket each year
  • Lower current tax hit, still significant RMD reduction
  • Good balance for most people

Scenario C: Minimal Conversions

  • Only fill the 10% bracket
  • Very low current taxes, but RMDs still substantial
  • Best if you expect lower taxes in the future (rare)

You need software that can model all three scenarios and show you the lifetime tax difference.

Step 4: Consider the 5-Year Rule

Roth conversions have a 5-year waiting period before you can withdraw the converted principal penalty-free (if you’re under 59½).

Each conversion starts its own 5-year clock.

Example:

  • Convert $50k at age 60 → Available penalty-free at age 65
  • Convert $50k at age 61 → Available penalty-free at age 66
  • Convert $50k at age 62 → Available penalty-free at age 67

Planning implication: If you’re retiring at 60 and need the money at 62, you can’t use conversions to fund those years. You need other sources.

After 59½: The 5-year rule doesn’t apply to conversions (only to earnings), so this becomes less of a concern.

Step 5: Account for State Taxes

Don’t forget state tax implications:

High-tax states (CA, NY, NJ, etc.):

  • Conversions face 5-10% state tax on top of federal
  • Consider moving to low/no-tax state before converting
  • Or convert while temporarily in low-tax state (traveling, second home)

No-income-tax states (FL, TX, NV, WA, etc.):

  • Conversions only face federal tax
  • HUGE advantage for large conversions
  • Worth timing move to coincide with conversion years

Example:

  • $100k conversion in California: 9.3% state tax = $9,300
  • Same conversion in Florida: $0 state tax
  • Savings: $9,300 (per year of conversions)

Over 10 years of conversions: $93,000 in state tax savings just from moving.

Step 6: Mind the IRMAA Cliffs

Converting too much can trigger Medicare premium surcharges (IRMAA) once you’re 65+.

2024 IRMAA Thresholds (Individual):

  • Under $103,000 MAGI: Standard premium
  • $103,000 - $129,000: +$839/year
  • $129,000 - $161,000: +$2,096/year
  • $161,000 - $193,000: +$3,354/year

These are cliffs, not gradual increases. Going from $102,999 to $103,001 costs you $839.

Conversion strategy:

  • Convert before 65 if possible (no IRMAA yet)
  • After 65, be careful not to cross IRMAA thresholds
  • Remember: IRMAA is based on MAGI from 2 years prior
  • Your 2025 conversion affects your 2027 Medicare premiums

Advanced Roth Conversion Strategies

Strategy 1: Bracket Topping

Fill up your current bracket but don’t spill over into the next one.

Example at age 64:

  • Income: $45k
  • After standard deduction: $15,800 taxable
  • Top of 12% bracket: $94,300
  • Room in bracket: $78,500
  • Convert exactly $78,500

You pay 12% on the conversion. Compare to taking that as RMDs later at 22%+.

Savings: 10% of $78,500 = $7,850 (just this year)

Strategy 2: The “Roth Bridge”

For early retirees using the Roth conversion ladder to fund FIRE:

The setup:

  • Retire at 55
  • Convert traditional IRA money each year
  • Wait 5 years, then access conversions penalty-free
  • Create a “bridge” to age 59½

Timeline:

  • Age 55: Convert $50k (available at 60)
  • Age 56: Convert $50k (available at 61)
  • Age 57: Convert $50k (available at 62)
  • Age 58: Convert $50k (available at 63)
  • Age 59: Convert $50k (available at 64)

By age 60, you have $50k/year available from conversions to fund living expenses while avoiding the 10% early withdrawal penalty.

Strategy 3: Backdoor Roth + Mega Backdoor

If you’re still working with high income:

Backdoor Roth:

  • Contribute $7,000 to non-deductible traditional IRA
  • Immediately convert to Roth
  • No income limits, no taxes (if done quickly)
  • Adds $7k/year to Roth

Mega Backdoor Roth:

  • Make after-tax 401(k) contributions (up to $69,000 total limit in 2024)
  • Convert after-tax portion to Roth
  • Can add $30-40k/year to Roth depending on plan

Watch out for the pro-rata rule if you have existing traditional IRA balances.

Strategy 4: The “Bracket Spike” Year

Sometimes you have one unusually low-income year. Use it.

Examples:

  • Laid off, between jobs
  • Business has a down year
  • Took a sabbatical
  • Semi-retired working part-time

Convert aggressively in that year:

  • You might be able to fill the 22% bracket
  • Even fill the 24% bracket if it’s truly unusual
  • Much better than 32%+ in normal working years

Real example:

  • Software engineer, normally $180k salary
  • Takes 6 months off between jobs
  • Income this year: $60k
  • Converts $100k from traditional to Roth
  • Pays ~$18k in tax (effective rate)
  • Saves paying 32% on that money later

Strategy 5: Recharacterization Insurance (Removed, But Know the History)

Prior to 2018, you could “undo” a Roth conversion (called recharacterization) if the market dropped after conversion.

Example of how it used to work:

  • Convert $100k on Jan 1
  • Market crashes 30% by October
  • Your $100k is now $70k
  • You owe taxes on $100k
  • You could “recharacterize” (undo the conversion)
  • Avoid paying taxes on $100k for only $70k of value

TCJA eliminated recharacterization of conversions in 2018. You can still recharacterize Roth contributions, but not conversions.

Planning implication: Don’t convert if you think a crash is imminent. You can’t undo it anymore.

Common Roth Conversion Mistakes

Mistake 1: Converting Too Much at Once

The problem: Converting $500k in one year pushes you through multiple brackets.

Example:

  • Convert $500k when income is $50k
  • Pay 10% on first chunk, 12% on next, 22%, 24%, 32%, 35%…
  • Effective rate on conversion: ~28%

Better approach:

  • Convert $70k/year for 7 years
  • Stay in 12-15% brackets
  • Effective rate: ~12%
  • Tax savings: $80,000+

Mistake 2: Not Having Cash to Pay the Tax

The problem: You convert $100k but use $22k from the conversion to pay the taxes.

Why it’s bad:

  • You only converted $78k (net) but paid tax on $100k
  • The $22k you pulled out never gets to grow tax-free
  • If under 59½, that $22k faces 10% penalty too

Better approach:

  • Have cash outside IRA to pay conversion taxes
  • Let the full $100k grow tax-free in Roth
  • Much better long-term outcome

Mistake 3: Ignoring Future Tax Rates

The fallacy: “I’ll be in a lower bracket in retirement.”

Reality check:

  • Social Security is taxable (up to 85%)
  • Pension income
  • RMDs from large traditional IRA
  • Investment income
  • You might be in the SAME or HIGHER bracket

Example:

  • Age 45, working: $120k salary, 22% bracket
  • Age 75, retired: $40k SS + $25k pension + $55k RMD = $120k
  • Still in 22% bracket (or higher post-TCJA)

The “I’ll be in a lower bracket” assumption is often wrong for successful savers.

Mistake 4: Converting in High-Income Years

The problem: Converting while still working at peak earnings.

Example:

  • Age 55, $200k salary
  • Already in 32% bracket
  • Convert $50k → pay $16k tax

Better:

  • Wait until 62, semi-retired, $40k income
  • Convert same $50k → pay $6k tax
  • Savings: $10k

Patience saves money.

Mistake 5: Not Modeling It

The problem: Guessing instead of calculating.

“I’ll just convert $50k/year and see what happens.”

Better: Model your entire retirement with different conversion strategies and see which minimizes lifetime taxes.

What to model:

  • Current path (no conversions)
  • Moderate conversions ($40-60k/year)
  • Aggressive conversions (fill 22% bracket)
  • Compare lifetime tax bills
  • Consider IRMAA impacts
  • Account for TCJA expiration

The 2025 Roth Conversion Opportunity

We’re in a unique moment in tax history:

Factors converging in 2025:

  1. TCJA rates still in effect (12%, 22% brackets)
  2. Higher standard deduction ($29,200 MFJ)
  3. Known expiration date (creates urgency)
  4. Post-COVID market recovery (account values up)
  5. Pre-RMD years for many boomers (ages 60-72)

This is the best Roth conversion environment in a generation.

By 2026:

  • Tax rates increase (15%, 25% brackets)
  • Standard deduction drops (~$15k MFJ)
  • Conversions become more expensive
  • Opportunity window closes

If you’re going to do Roth conversions, 2025 is the year.

How to Actually Execute This

Step-by-step process:

January-February 2025:

  1. Review last year’s tax return
  2. Project 2025 income
  3. Calculate conversion capacity
  4. Model scenarios with proper software

March-April 2025:

  1. Make first conversion (25-30% of annual target)
  2. Pay estimated taxes if needed
  3. Document your strategy

June-July 2025:

  1. Second conversion (another 25-30%)
  2. Check year-to-date income
  3. Adjust if needed

September-October 2025:

  1. Third conversion (another 25-30%)
  2. Final year-end income projection
  3. Plan final conversion amount

November-December 2025:

  1. Final conversion for the year
  2. Confirm total conversions for tax planning
  3. Pay Q4 estimated taxes
  4. Document for tax prep

Why spread it out?

  • Averages your conversion cost (market volatility)
  • Easier to manage tax payments
  • Can adjust if income changes mid-year

What Software You Actually Need

To do this right, you need software that can:

✓ Model conversions year-by-year over your lifetime ✓ Show tax impact in each year with conversions vs without ✓ Calculate lifetime tax difference between strategies ✓ Account for IRMAA thresholds ✓ Model TCJA expiration (different tax rates in 2026+) ✓ Show RMD amounts with/without conversions ✓ Compare multiple scenarios side-by-side ✓ Account for state taxes ✓ Show Roth balance growth over time

Most retirement calculators can’t do this. They might have a “Roth conversion” field, but they don’t optimize it or show you the comparison.

The Bottom Line

Roth conversions are one of the most powerful tax optimization strategies available. When done right:

  • Reduce lifetime tax bills by $100-300k+
  • Eliminate or minimize RMDs
  • Avoid IRMAA surcharges
  • Control your taxable income in retirement
  • Leave tax-free money to heirs
  • Create tax diversification

But they require:

  • Planning during your low-income years
  • Cash to pay conversion taxes
  • Software to model the strategy
  • Discipline to execute over multiple years

The 2025 opportunity is real and limited. TCJA rates expire in 351 days. If you’re in the sweet spot (ages 55-72, have traditional IRA balances, and can manage the tax bill), this is your year.

Ready to build your Roth conversion ladder? Download Fatboy Financial Planner and model your conversion strategy. See exactly how much to convert each year, what you’ll pay in taxes, and how much you’ll save over your lifetime.

Because the IRS doesn’t care about your retirement plans. But you should.

Questions about Roth conversion strategies? Email: fbfinancialplanner@gmail.com

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