Key Numbers and Analysis
Roth conversion ladder year-by-year mechanics
| Year | Action | Tax Impact | Accessible |
|---|---|---|---|
| Year 1 of FIRE | Convert $48,000 traditional IRA to Roth | Pay income tax on $48,000 at low FIRE bracket | No (5-year wait) |
| Year 2 of FIRE | Convert another $48,000 | Pay income tax again at low bracket | No |
| Year 3-4 | Continue converting $48,000/year | Managing tax bracket | No |
| Year 5 of FIRE | Withdraw Year 1 converted amount | No tax, no penalty | Yes — $48,000 accessible |
| Year 6+ | Each year’s conversion available 5 years later | Ongoing | Growing annual access |
ℹ️Bridge the First 5 Years
The Roth conversion ladder has a 5-year delay. FIRE retirees must bridge the first 5 years with: (1) taxable brokerage account, (2) Roth IRA contributions already made (basis), (3) cash buffer. This is why taxable brokerage account funding is essential in FIRE planning.
Scenarios and Comparison
Roth conversion rate by federal tax bracket for FIRE retirees
| Income Level | Federal Tax Bracket | Conversion Advice |
|---|---|---|
| $0-$23,200 (MFJ) | 10% | Convert aggressively — very low tax cost |
| $23,200-$94,300 (MFJ) | 12% | Convert up to this bracket before hitting 22% |
| $94,300-$201,050 (MFJ) | 22% | Convert carefully — significant tax cost |
| $201,050+ (MFJ) | 24-32% | Minimize conversions — tax cost erodes benefit |
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