Withdrawal from Roth After Conversion to TIRA but before …
This is a follow on to the thread from before…but here is the sequence:
1.) Convert $1mm from TIRA to Roth on 1/2/2013. Roth is 5 year-seasoned from prior establishment and minor contribuions.
2.) Roth grows to $1.5mm by October 15, 2014 and file return with conversion and pay all taxes for the conversion (as well as any interest…no penalties as I will have paid 110% of prior year’s taxes in estimated)
3.) Question: If I withdraw e.g. $100,000 from this account on 1/5/2013 from the Roth:
If I keep the conversion as of October 15, 2014 is this a tax-free withdrawal since it was a Roth at the time and was kept a Roth?
I am assuming if I don’t keep the conversion and revert it back to a TIRA on October 15, 2014 that it would be treated as any other withdrawal from a TIRA and would be fully taxable as income etc. I am not yet subject to RMD so that is not an issue.
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2013-05-30 21:40
The 100,000 Roth distribution is tax and penalty free because your Roth is fully qualified. In fact, any amount including the full balance would be tax and penalty free. Of course, you would owe tax on the 1mm conversion itself. If you withdrew 100k from the Roth, you could still recharacterize the remainder of your conversion as a partial recharacterization, and that would leave you with a 100k conversion (taxable) and 100k distribution from the Roth (tax free). Instead, if you did not take any distribution, but recharacterized the full conversion in Oct, 2014, the entire 1. 5mm would transfer back to the TIRA and would be taxable when it came out later as RMDs or otherwise. You obviously would not recharacterize a conversion with a 50% gain and send a tax free gain into a TIRA where it will eventually be taxed. If you could not pay the conversion taxes, you would just withdraw the funds from the Roth to pay the taxes and that would preserve your tax free gains.