IRA to Roth Conversion withdrawal before 5 years

I need to confirm something about a Roth conversion – it is my understanding that for a conversion after 59 1/2 the conversion amount can be withdrawn at any time without penalty and without tax, but any withdrawal over the conversion amount – i.e. earnings – can not be taken until the 5 year period expires. So I convert $100k from a 401K plan, pay the tax to convert it and then 1 year later the Roth value is $103k – I decide to withdraw $90k – there is no penalty or tax as I am taking back my conversion amount that was already taxed – correct?

Or, am I missing something?

Thanks,

Jeff



Yes, you are correct. The distribution still needs to be reported on Form 8606 unless your Roth IRA is fully qualified because your first Roth contribution of any kind was done prior to 2013. If this conversion was your first Roth contribution and therefore your Roth is not yet qualified, you would need to show the 100k as your Roth conversion basis on line 24 of Form 8606. SInce that is more than the 90k you are withdrawing, your distribution is tax and penalty free. You mentioned 401k, but I assume that no Roth 401k is involved here, and you converted to a Roth IRA.

Add new comment

Log in or register to post comments

Sign up to receive The Slott Report each week