72(t) SEPP on Roth IRA shortly after conversions? | Ed Slott and Company, LLC

72(t) SEPP on Roth IRA shortly after conversions?

Hi,

I am well under age 59.5 and have done some Roth conversions in the past couple years. Based on the 5-year rule, I will be able to access all of that penalty-free no later than 1/1/19. However, I'd like to actually start a SEPP on the Roth IRA later this year or next year, if possible. I'm just not sure if I can do that when a portion of the Roth IRA is composed of amounts that have not yet met the 5-year requirement.

Based on other discussions I've seen here, when someone has an IRA with SEPP and converts the whole thing to Roth, they just need to keep going with the SEPP and it seems like the pre-existing SEPP exception to 10% penalty overrides the normal 5-year conversion wait. Is that accurate? If so, would the same logic apply to my scenario.

Thanks!

Same logic does apply. As long as the Roth IRA is part of a SEPP plan, the SEPP penalty exception also covers the early withdrawal penalty on conversions held under 5 years. You can also have a SEPP plan in which both a TIRA and a Roth IRA are part of the plan. You then have a choice of whether your distributions come from the TIRA or the Roth, based on how you want the distributions taxed. For the penalty waiver, just file the 5329 as you ordinarily would showing the SEPP exception code of 02.

Can you point me to any IRS documents that make this clear?

With respect to the 10% penalty waiver for SEPP distributions of conversion money, see IRS Pub 590 B, p 30 and 31.

 

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