Withdrawal from Roth IRA after Conversion from TIRA
I am over 65. If I convert e.g. $1mm from a traditional IRA to a Roth and pay full income taxes on that conversion are there ANY limitations/penalties after the conversion on withdrawals from the Roth? e.g. Can I withdraw money from the Roth immediately after the conversion?
Permalink Submitted by tomd37 on Sun, 2013-05-26 16:25
Not sure if it is needed for a proper response from someone, but how old are you and do you have any other Roth account and, if so, for what period of time do you hold that account? Tom D.
Permalink Submitted by Alan - IRA critic on Sun, 2013-05-26 23:22
If this is your first Roth IRA, you can withdraw your converted amount at any time without tax or penalty. Amounts in excess of your conversion are earnings and earnings will be taxable until your Roth has been held 5 years. The conversion money comes out before any earnings.
Permalink Submitted by Seth Poppel on Mon, 2013-05-27 03:42
So, to make it perfectly clear…If I converted $1mm on January 2, 2013 and I am age 69 and on October 15, 2014 (last chance date for reversal) that account has grown to $1.5mm (e.g.) and I decide to keep the conversion, I may withdraw $500,000 to pay taxes on my conversion (e..g) and there are no penalties etc. since I converted $1mm. It would only be until I take out the $1mm I converted that there COULD be a penalty if the earnings have been in the account for less than 5 years? Also, to further qualify it, the Roth account did exist for 10 years or so prior to the conversion, but only with a diminimus amount ($5,000) and does THAT change the need for my earnings to be in the account for 5 years before I can withdraw them? Thank you…this is a wonderful board with very helpful information.
Permalink Submitted by Alan - IRA critic on Mon, 2013-05-27 04:03
There is never a penalty since you are over 59.5. However, if this is your first Roth IRA, if you take out MORE than the 1mm you converted before 5 years, the amount in excess of 1mm will be taxable (earnings). If your first Roth contribution of ANY amount was earlier than 1/1/2009, then your entire Roth is qualified starting in 2013. You could then take out the full amount including earnings tax free. In your example, you might incur a late payment penalty for your 2013 income tax bill since taxes are due 4/15/2014 and you are considering taking out the conversion funds in October, 4 months after the taxes are due. You can extend your return, but you are supposed to pay the estimated tax bill by 4/15.
Permalink Submitted by Seth Poppel on Wed, 2013-05-29 07:58
Roth opened with $5,000 in 2000 or so and around 2009 that was drawn down to $500 or so but account was left open. I am 69 years old. January 2, 2013 I take a conventional IRA and transfer $1,000,000 to the Roth that was existing with the $500. On October 15, 2014 I have grown the $1mm to $1.5mm (e.g.) and decide to leave the conversion as permanent and pay the taxes that were due (please ignore late payment penalty & interest on that) on April 15, 2014 and decide, for whatever reason, to withdraw ALL of the money from the Roth at that time (not likely to do that, but just as an extreme to make sure I completely understand). There is NO tax (again ignoring late payment penalty/interest) on ANY of that money (the full $1.5mm which is comprised of my conversion $1mm + $.5mm in earnings)) since the Roth itself was opened in 2000 (no matter how much was previously in it.)??
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-29 19:34
That is correct. No tax or penalty due. Of course, if you withdrew the funds in April, 2014, you could not recharacterize your conversion after that date and the taxes on the former 1mm conversion would be due. Again, you would owe the taxes on the former conversion TO THE ROTH, but no tax as a result of the Roth IRA distribution.