Roth Conversions After Problem Contribution
A taxpayer opens a Roth IRA account by CONTRIBUTING to it in 2005. But the taxpayer pays a penalty to the IRS, because the contribution was partially too high and violated MAGI rules.
The taxpayer makes CONVERSIONS to that same account during 2015, 2016, 2017 and 2018.
The taxpayer is well over 59 1/2.
Are the COVERSIONS (including earnings ) qualified and therefore not taxable upon withdrawal?
Thank you.
Permalink Submitted by David Mertz on Fri, 2018-09-14 18:30
Because at least some of the contribution in 2005 was not an excess contribution, the 5-year clock for determining if a Roth IRA distribution is a qualified distribution began on January 1, 2005 (or earlier if Roth IRA contributions were made for earlier years). This means that the individual has now met the 5-year rule and, because the individual is now also over age 59½, ANY regular distribution the individual makes from any of the individual’s Roth IRAs is a qualified distribution, tax and penalty free. It doesn’t matter how the money got into the Roth IRA.