Roth Conversion 5 year holding period not met over 59 1/2
Client converts traditional IRA to Roth IRA. He is over 59 1/2 at the time of the conversion. If he needs to make a distribution within 5 years of initial opening of Roth Conversion, will there be any penalties on the income the Roth Conversion produces?
Thanks!
Permalink Submitted by Al Fry on Wed, 2008-12-31 16:19
No, since he is over 59 1/2. Plus, if his withdrawal is less than his cost basis, it will not be taxable (he paid tax on the conversion).
Permalink Submitted by [email protected] on Wed, 2008-12-31 16:57
but taxes will be paid on the distribution amount?
for example: man 60 years old converts traditional IRA to Roth IRA in 2008 worth $100,000. In 2010, the account is worth $110,000. There is no penalty since he is over 59 1/2 but the $10,000 income it produced in those 2 years is taxable if the total account is liquidated. Is this correct?
Permalink Submitted by Al Fry on Wed, 2008-12-31 19:38
Correct. So he would not be too smart to do that. If he would just take out the $100k in 2010, in 3 more years, there would be no tax on the earnibgs.