Roth Distribution and Roth Conversion in the same year
I need to access retirement funds for living expenses as my income is low this year and I have exhausted savings outside of my retirement accounts.
I have done several ROTH conversions but have never done a distribution. My ROTH conversions were in 2009, 2015, and 2016. I have never made a ROTH contribution. I am under 59 1/2.
I understand that I can do a ROTH distribution for the amount of my 2009 conversion, I will not pay any tax on this distribution, and I will not have the 10% penalty as I am beyond the five year holding period as described here: https://irahelp.com/slottreport/watch-out-penalty-when-you-take-roth-ira-distribution
Since my income is low this year it is also advantageous for me to do a ROTH conversion as I could convert a significant amount of my traditional IRA and not pay any tax on the conversion. I have a lot of deductions that will go unused otherwise.
What I am wondering is if there is any restriction on me doing both the ROTH distribution and the Roth Conversion as described above in the same year or close in time. I have not found any information to indicate that this isn’t allowed but I was wondering if someone could weigh in.
My main concern is that somehow I incur the 10% penalty on the distribution because I’m doing both the conversion and the distribution. However, given the first-in-first-out rules that doesn’t occur unless there is some special case I haven’t been able to find.
Permalink Submitted by Alan - IRA critic on Tue, 2018-11-13 01:44
Any conversion you do this year will only affect taxation of your distributions by putting more conversion dollars in front of your earnings in the event you withdraw that much. You are correct about your 2009 conversion being exempt from penalty, but all other conversions are not exempt from the penalty. Perhaps you qualify for a different penalty exception that could erase some or all of your penalty on conversions starting in 2015. If you have a traditional IRA and are in such a low bracket, perhaps you should take some distributions there, however those would be subject to both tax and penalty (unless you have another penalty exception).