QCDs and Roth Conversions: Today’s Q&A Mailbag
Director of Retirement Education
- Contributions – Contributions come out first and are always tax and penalty free. No exceptions.
- Conversions – Conversions come out once contributions are fully distributed, first in, first out. They are income tax free. However, each conversion has its own 5-year holding period for the 10% early distribution penalty. A distribution before the 5-year holding period is up will be subject to the penalty, if no exception applies, as long as the converted amount was taxable at the time of the conversion. Once the 5 years are up for each conversion, a distribution of the converted amount has no 10% penalty.
- Earnings – Once all the basis in the Roth is gone, then earnings are distributed. Earnings will always be taxable and subject to the 10% penalty, if applicable.
It is important that Roth IRA owners track their contributions and conversions in order to properly report the distribution to IRS when an early distribution is taken. Early Roth distributions are reported on Form 8606 which must be filed with the Roth owner’s tax return for the year.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to email@example.com for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at firstname.lastname@example.org or (516) 536-8282 with any questions.