What is the five-year rule I keep hearing about with a Roth conversion ladder?

When you convert money from a traditional IRA to a Roth, that converted amount must sit in the Roth for five tax years before you can withdraw it penalty-free if you are under 59.5. Each conversion has its own separate five-year clock. That is why a Roth conversion ladder is built in advance: you convert an amount each year, and five years later that year's conversion becomes available to spend without the 10% early-withdrawal penalty, creating a rolling annual pipeline of accessible funds. The IRS treats this conversion five-year rule separately from the different five-year rule that governs tax-free growth on a Roth account itself. For an early retiree, the practical takeaway is you need roughly five years of expenses in a taxable account or Roth contributions to bridge the gap while the first rungs of the ladder mature.