A Roth conversion ladder can help reduce future tax liabilities and provide early access to retirement funds.

• A Roth conversion ladder is a multi-year plan to move pre-tax money into a Roth IRA, which promotes future tax-free growth.
• You will be required to pay upfront levies on the converted balance, but there is no 10% early withdrawal penalty after five years.
• If you tap into conversions after only five years, you may miss out on future tax-free growth.

Experts suggest that Roth individual retirement account conversions are a popular method for reducing future taxes on pretax 401(k) or IRA withdrawals, and that a "Roth conversion ladder" can help smooth out the upfront tax hit.

Roth conversions allow for the transfer of pretax or nondeductible IRA funds to a Roth IRA, providing tax-free growth in the future. However, this comes at the cost of paying regular income taxes on the converted balance in the current year.

A Roth conversion ladder involves a series of conversions over multiple years, resulting in smaller tax payments, according to certified financial planner Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.

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Ashton Lawrence, CFP and director at Mariner Wealth Advisors in Greenville, South Carolina, stated that Roth conversion ladders are a "strategic and tactical approach" that require years of tax projections, including future withdrawals.

Instead of transferring $200,000 from pretax to Roth in a single year, you can spread it out over several years based on your income. However, increasing your adjusted gross income in any given year may result in other tax implications, such as the loss of certain tax deductions.

Lawrence stated that the planning engagement is not a one-time event because it requires annual revisions and adjustments to the planned conversions.

'Unlock' your retirement funds early

Cherry, a member of CNBC's Financial Advisor Council, stated that one of the benefits of conversion ladders is tax-free compounded growth on future gains, similar to regular Roth conversions.

He stated that the strategy is also popular among early retirees who want to withdraw retirement funds before the age of 59½ without penalty.

Withdrawing Roth IRA contributions before age 59½ may result in a 10% penalty on earnings, but there are some exceptions.

Cherry stated that Roth conversions can be tapped without a 10% penalty or taxes after five years, but each conversion has a separate 5-year period.

The Roth IRA account must be open for at least five years to avoid taxes or penalties, even after age 59½, according to a 5-year aging rule.

Early retirees under age 59½ may find it tempting to tap their converted IRA balance after five years, but doing so will result in the loss of future tax-free growth, according to Lawrence.

It is generally more advantageous to make Roth conversions when there is more time for compound growth, and it is important to ensure that you are breaking even on the initial taxes before withdrawing from the account.