ROTH IRA CONVERSIONS OVER YEARS | Ed Slott and Company, LLC

ROTH IRA CONVERSIONS OVER YEARS

I have a client,who is in her late 40's who has an IRA valued at roughly $250K. We have discussed a strategy for converting the entire balance over the next 5 years -- before TCJA goes away - to a Roth. Just to be clear, although the converted amount made each year will be included in her form 8606, which will not provide her with the full tax free benefits of the Roth conversion in the same year- but once everything is converted over in the next few years- will all of the converted amount (she has no other pre-tax IRA) be considered 100% tax free?

Converted amounts are always non taxable when withdrawn from the Roth, but there is a 10% penalty if withdrawn prior to the completion of 5 years for each conversion year. The penalty for later conversions also stops at 59.5 when the entire Roth will be completely tax and penalty free since all distributions after that will be qualified.

 

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