Non-deductibe IRA Roth Conversion
I understand the 5 year rule on TIRA deductible IRA conversions and that its to prevent people from getting around the 10% penalty. My question is if all the client has is a non-deductible contribution that we immediately convert to roth for virtually no taxes. Can he have access to the basis w/o penalty if he needed it down the road. Does the 5 year rule still apply since he didnt get to deduct the contribution?
Thanks,
Nick
Permalink Submitted by Alan - IRA critic on Wed, 2015-08-12 16:40
Nick, the conversion 5 year holding period only applies to the taxable amount of the conversion. If the conversion is non taxable then the conversion dollars can be withdrawn anytime without penalty. If the conversion was partly taxable and then was withdrawn before 5 years, the taxable portion is considered to be the first dollars withdrawn and would be subject to the penalty. The remaining non taxable portion would come out penalty free.