Roth Conversion Ladder
A multi-year strategy of converting traditional retirement funds to a Roth IRA so the converted principal becomes penalty-free to withdraw early, funding retirement before 59½.
Each Roth conversion starts its own five-year clock. Once five years have passed on a given conversion, you can withdraw that converted principal (not any earnings on it) with no 10% early-withdrawal penalty, even if you're nowhere near 59½ — a Roth IRA's ordering rules let converted principal come out before earnings.
The 'ladder' comes from doing this every year for several years leading up to an early retirement. Each year's conversion clears its own five-year wait in sequence, so by the time you actually retire, you have a rolling supply of penalty-free money arriving on schedule, year after year, to bridge the gap before 59½.
It isn't free money now — you owe ordinary income tax on each conversion in the year you do it, same as any Roth conversion, which is why the strategy works best executed in low-income years (after leaving work, before Social Security or RMDs begin). It also raises MAGI in the conversion year, which can affect ACA subsidies and, two years later, Medicare IRMAA — worth modeling alongside the ladder itself rather than in isolation.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.