Roth Conversion penalty

Submitted by nick sklenar on Tue, 2013-02-12 17:05

In 2012 I did a $21,000 roth conversion and requested tax witholding. I am under 59 1/2 years old. The custodian issued 2 1099R’s. One showed a gross distibution amount of $17200 with no tax withheld and code 2 (early distribution exception applies). The second 1099 showed a gross distribution of $3,800 fully taxable code 1 (early distribution no exception).

Is this correct that I am subject to a 10% penalty on the amount of the tax that was withheld?



Submitted by Alan - IRA critic on Tue, 2013-02-12 17:42

Yes, unless you replace the withheld funds with your other cash to complete the rollover, but you only have 60 days to do that. If the distribution was after mid December, there is still time to do that. In most cases, paying taxes out of a Roth conversion is not recommended for this reason.

  • NOTE: If you cannot complete the rollover, you may still not have to pay a penalty if you qualify for a penalty exception (eg higher education, high medical expenses, first home, disability etc.)  You would claim any of these exceptions using Form 5329.

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