Model withdrawal sequences across taxable, tax-deferred, and Roth accounts to minimize lifetime tax burden with Roth conversion ladder.
This planner models year-by-year withdrawal sequences across taxable, tax-deferred, and Roth accounts from your balances, annual spending, and tax-bracket assumptions. It chooses the order that minimizes lifetime tax, not this year's tax, and it sizes a Roth conversion ladder: annual conversions that fill low-bracket headroom, each starting its own five-year clock. The surprise most people hit: a conversion is taxable income in the year you convert it. Converting from a high bracket raises tax today; the ladder only pays off when it fills brackets you would otherwise leave empty.
A concrete input and expected output from the current implementation.
Input
Annual spending: $70,000. Traditional IRA: $600,000. Roth IRA: $150,000. Taxable brokerage: $0. Tax brackets: 10% on the first $20,000 of withdrawals, 12% on the next $30,000, 22% above $50,000. Tax paid out of the withdrawal.
Expected output
Year 1: take $20,000 from the traditional IRA at 10% ($2,000 tax), $30,000 at 12% ($3,600), and the remaining $20,000 at 22% ($4,400). Total withdrawn: $70,000; total tax: $10,000. The Roth IRA stays untouched at $150,000; the traditional IRA is left with $530,000.
The planner spends Roth dollars last, so the full $70,000 comes from the traditional IRA and is taxed in the three entered brackets: $20,000 at 10%, $30,000 at 12%, and $20,000 at 22%. Those pieces come to $2,000 + $3,600 + $4,400 = $10,000 in tax, and $600,000 - $70,000 leaves $530,000.
Each year the planner sorts your cash need across account types. Taxable brokerage dollars are spent first, because only capital gains are taxed. Tax-deferred accounts are then withdrawn up to your chosen bracket ceiling, and Roth dollars are drawn last: their growth is permanently tax-free and they have no required minimum distributions. The sequence is recomputed every year as balances, brackets, and spending change.
The conversion component moves a chosen amount from the traditional IRA to the Roth each year. The converted amount is taxable income that year, so the planner caps conversions at the headroom below your next bracket ceiling. Each conversion runs its own five-year clock: principal withdrawn inside five tax years takes the 10% early-distribution penalty; after that it is penalty-free, and conversions also shrink future required minimum distributions.
Because Roth growth is permanently tax-free and Roth balances have no required minimum distributions, spending those dollars first forfeits the most valuable money you own. Taxable and traditional withdrawals cost less today or defer tax entirely. The exception is a year with a large income spike or subsidy-sensitive income, where the planner may deliberately switch the order.
The ladder runs through Roth IRAs. You can roll a 401(k) into a traditional IRA, usually without tax, then convert from there, or convert directly if the plan permits in-service conversions. The converted amount is still taxable that year. Also consider the rule of 55: money left in your current employer's plan is penalty-free if you separate from service in or after the year you turn 55.
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