10% penalty on Roth Conversion
If a person converts a traditional IRA to a Roth, is there always a 10% penalty for withdrawals(basis or earnings), no matter what age during the first 5 years?
If a person converts a traditional IRA to a Roth, is there always a 10% penalty for withdrawals(basis or earnings), no matter what age during the first 5 years?
Permalink Submitted by Alan Spross on Mon, 2008-01-21 18:21
Not always.
If your Roth balance for all your Roth IRAs has regular contributions, they always come out first tax and penalty free.
If you tap conversion dollars, the penalty applies unless you are age 59.5, disabled, or meet another exception. See p 66 of Pub 590 for a list of all the exceptions.
Finally, if you tap earnings, they will be taxed unless you meet the qualification requirements, and if they are taxed they will also incur the penalty unless you meet one of the exceptions shown on p 66.
Your question mentions age, and the 5 year conversion requirement ends when you reach 59.5, even for conversions that have not met the 5 years before that date. But for earnings, the 5 years is measured from the first year you opened a Roth, and therefore could run beyond age 59.5.