What is a Roth conversion ladder and when should I use it?

A Roth conversion ladder involves converting Traditional IRA funds to Roth IRA gradually over several years. You pay taxes on conversions but can access converted funds penalty-free after 5 years. It's ideal for early retirees (before age 59.5) who need to access retirement funds or those in low-income years who can convert at lower tax rates.

What are the 2025 Roth IRA contribution limits?

For 2025, you can contribute $7,000 to a Roth IRA ($8,000 if age 50+). These limits phase out at higher incomes: singles earning $146,000-$161,000 and married couples earning $230,000-$240,000. High earners can use the 'backdoor Roth' strategy by contributing to a Traditional IRA and immediately converting to Roth.

Can I convert my Traditional 401(k) to a Roth IRA?

Yes, but you'll pay income tax on the converted amount in the year of conversion. Best timing is during low-income years (early retirement, sabbatical, job loss) or before RMDs begin at age 73. Consider converting gradually to avoid pushing yourself into higher tax brackets.

What is the 5-year rule for Roth IRAs?

There are two 5-year rules: 1) You must wait 5 years from your first Roth contribution to withdraw earnings tax-free (after age 59.5). 2) Each Roth conversion has its own 5-year clock before you can withdraw that conversion penalty-free. Contributions can always be withdrawn tax and penalty-free anytime.

Roth IRA Strategy Tool

Roth vs Traditional comparison and Roth conversion calculator - optimize your IRA strategy for maximum lifetime value

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🏆 Roth IRA Wins

Advantage: $268,194

Roth IRA is better. You're in a lower tax bracket now (22%) than expected in retirement (24%). Pay taxes at the lower rate now.

Personal Information

Current Age

Retirement Age

Annual Income ($)

Filing Status

IRA Details

Annual Contribution ($)

2025 limit: $7,000 ($8,000 if 50+)

Current IRA Balance ($)

Current Tax Bracket (%)Your marginal tax rate now

1037

Retirement Tax Bracket (%)Expected tax rate in retirement

1037

Expected Return (%)Annual investment return

015

Side-by-Side Comparison

Metric	Traditional	Roth	Difference
Total Contributed	$260,000	$260,000	Same
Balance at Retirement	$1,117,475	$1,117,475	Same
Taxes Paid (Lifetime)	$268,194	$46,200	$221,994
NET AFTER-TAX VALUE	$849,281	$1,117,475	$268,194

Key Concepts

Tax Now or Tax Later?

The fundamental choice:

Traditional: Tax deduction NOW, pay taxes LATER (in retirement)
Roth: Pay taxes NOW, tax-free LATER (in retirement)
Conversion: Already taxed once, pay taxes again NOW for tax-free LATER

Simple rule:

Lower tax bracket NOW → Pay taxes now (Roth)
Higher tax bracket NOW → Defer taxes (Traditional)
Expect higher taxes LATER → Pay taxes now (Roth/Conversion)

The RMD Problem

Traditional IRA requires withdrawals starting age 73:

Forced taxable income whether you need it or not
Can push you into higher tax brackets
Makes more Social Security taxable (up to 85%)
Triggers Medicare surcharges (IRMAA)
Reduces control over your retirement income

Roth IRA has NO RMDs:

Let it grow as long as you want
Withdraw only what you need
More control over tax situation
Better for estate planning

Optimal Conversion Timing

Best times to convert:

Low-income years: Job loss, sabbatical, early retirement gap years
Before RMDs start (age 73): Maximize tax-free growth years
Market downturns: Convert at lower values, capture recovery in Roth
Before Social Security (62-70): Avoid stacking income sources
Before Medicare (age 65): Avoid IRMAA surcharges

Worst times to convert:

Peak earning years (high tax brackets)
After RMDs start (stacks with RMD income)
After age 65 if near IRMAA thresholds

Key Financial Terms

Understand the essential concepts behind this calculator

Roth IRA

A retirement account funded with after-tax dollars that grows tax-free, with tax-free withdrawals in retirement.

Learn more →

Traditional IRA

A retirement account with tax-deductible contributions that grow tax-deferred until withdrawal in retirement.

Learn more →

Backdoor Roth IRA

A legal strategy allowing high earners to contribute to a Roth IRA by converting a Traditional IRA contribution.

Learn more →

View all financial terms in our glossary →

Frequently Asked Questions

Common questions about the Roth IRA Strategy Tool

It depends on your current vs. future tax bracket. Choose Roth if you expect to be in a higher tax bracket in retirement (typical for younger workers with growing income). Choose Traditional if you're currently in a high tax bracket and expect lower income in retirement. Many people benefit from having both for tax diversification.

📊 Historical Market Data Sources

S&P 500 Historical Returns:

• Average annual return (1926-2024): ~10% nominal, ~7% inflation-adjusted
• Standard deviation: ~20% (indicating significant year-to-year volatility)
→ Source: NYU Stern - Historical Returns on Stocks, Bonds and Bills

Dividend Yields:

• S&P 500 average dividend yield: 1.5-2.0% (as of 2024-2025)
• Historical dividend growth rate: ~5.9% annually (1960-2024)
→ Source: S&P Dow Jones Indices

Bond Returns:

• 10-Year Treasury bonds: ~5% average annual return (1926-2024)
• Corporate bonds (investment grade): ~6% average annual return
→ Source: NYU Stern - Corporate Finance Data

Inflation Rate:

• Long-term average: ~3% annually (1926-2024)
• Recent (2020-2024): 2-8% range with 2022 peak at 8%
→ Source: Bureau of Labor Statistics - Consumer Price Index

Important: Past performance does not guarantee future results. Market returns vary significantly year-to-year. These are long-term historical averages.

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⚠️ Important Disclaimer

This Roth IRA Strategy Tool provides estimates for educational and informational purposes only. Actual results may vary significantly based on individual circumstances, market conditions, regulatory changes, and other factors beyond the scope of this calculator.

The calculations and projections provided are based on assumptions and historical data that may not reflect future performance.Past performance does not guarantee future results.

This tool is not financial advice, tax advice, legal advice, or investment advice. For personalized guidance tailored to your specific situation, please consult with qualified professionals including:

Certified Financial Planner (CFP)
Certified Public Accountant (CPA) for tax matters
Licensed attorney for legal matters
Registered Investment Advisor (RIA) for investment decisions

Data Accuracy: All data sources, statistics, and rates were verified as accurate as of October 2025. Tax rates, market conditions, and other financial data change over time. Always verify current rates and consult official sources.

No Warranties: While we strive for accuracy, we make no warranties or guarantees regarding the accuracy, completeness, or reliability of any information provided. Use this tool at your own risk.