Roth Conversion Ladder Calculator: Fill Low Brackets in Gap Years
The classic FIRE-community tax arbitrage: convert traditional IRA → Roth in a low-income year, pay today's lower rate, withdraw tax-free later. Net benefit is positive when your now-rate is below your expected later-rate — exact math, not a guess.
The FIRE community's favorite tax arbitrage
The Roth Conversion Ladder is simple in concept: in a year when your income is unusually low (early retirement, a sabbatical, between jobs), convert a chunk of traditional IRA → Roth IRA. The conversion adds to that year's AGI and gets taxed at ordinary rates — but those rates are low because the rest of your income is low. The converted amount then grows tax-free in the Roth, and you can withdraw the PRINCIPAL penalty-free 5 years later (the "5-year rule") even before 59½.
The arbitrage: you're betting your marginal rate at withdrawal (later-rate) will be HIGHER than the marginal rate on the conversion today (now-rate). Pay 12% now to avoid 24% later → you win. The classic case is bridging the gap between early retirement (age 55) and Social Security claiming (age 67-70) — multiple gap years of near-zero AGI let you ladder up $50K+ at the 10-12% brackets, building a tax-free pool for later. Pay the conversion tax from OUTSIDE the IRA (not from the converted balance itself), or you give up the tax-free growth on those dollars and break the arbitrage.
How the math works
- Conversion tax = tax(AGI + conversion) − tax(AGI), bracket-by-bracket through the 2025 federal brackets. The conversion is added to AGI in the conversion year.
- Marginal rate at top of conversion = the bracket the LAST converted dollar lands in — your effective "now-rate" for the arbitrage.
- Roth future value = conversion × (1 + annual return)^years. Tax-free at withdrawal.
- Traditional counterfactual: same growth, but withdrawn at the expected later-rate: conversion × (1 + return)^years × (1 − later-rate).
- Net benefit = Roth FV − Traditional net − future value of the conversion tax (the tax dollars also could have grown). Positive means conversion wins.
Sources: IRS Pub 590-A (IRA contributions), Pub 590-B (distributions, including the 5-year rule), Rev. Proc. 2024-40 for 2025 brackets and standard deduction.
What this simplifies: federal income tax only — state tax on the conversion can be significant (Roth conversions are usually taxed by states; some states like FL, TX, WA have no state income tax — those are conversion-friendly). IRMAA Medicare-premium surcharges can be triggered if conversion pushes AGI over income thresholds in the year of conversion (2-year lookback). Conversions of after-tax basis (the "backdoor Roth") have their own pro-rata math not modeled here. Expected withdrawal rate is your input — the future is uncertain.
Math runs locally. Inputs never leave your browser. Source on github.
Where this calculation doesn't apply
- You'd pay the tax from the IRA balance itself. That kills the arbitrage — those tax dollars stop growing tax-free. The net benefit here assumes you pay the tax from outside (taxable brokerage or cash).
- You'll need the money within 5 years. The 5-year rule on each conversion's PRINCIPAL means you can't access converted dollars penalty-free for 5 years (even after 59½, the timer per-conversion). Earnings stay locked until 59½.
- You're on Medicare and the conversion pushes AGI over IRMAA thresholds. IRMAA adds 2-year-lagged Medicare Part B and D premium surcharges based on MAGI. A large conversion can cost $1,000-5,000+ in extra premiums two years later — not captured here.
- You have after-tax basis in your traditional IRA. The pro-rata rule taxes each conversion partially as basis recovery, partially as ordinary income, based on the ratio across ALL your traditional IRAs. Not modeled — talk to a CPA.
- Your expected later-rate is the same as now-rate. The arbitrage breaks even. Conversion isn't worth the complexity unless rates clearly differ in your favor.
What to actually do
- Estimate your later-rate honestly. If you'll have a $40k retirement income, that's probably 12-22% (depending on filing status). Convert at rates BELOW that.
- Convert in November or December — by then you know your year's income precisely. Fill the 10% and 12% brackets to the top, stop before the 22% jump.
- Pay the conversion tax from a taxable brokerage account, not from the IRA itself. This preserves the full converted amount in the tax-free Roth.
- Track each conversion's 5-year rule separately. If you might need access, do it via the conversion-principal-after-5-years path (not the earnings).
- Use the FIRE / retirement-aging tools to project total tax across multiple years — a single year's conversion is part of a 10-year ladder strategy.