Traditional to Roth conversions
I currently have a Roth because I like being able to pull out my contributions tax free if I need to. I wish I could get the tax deduction benefits from a traditional ira though. If I were to contribute to a traditional ira then convert it to my roth, would I be able to get the best of both worlds? Would the rollover from traditional to roth be considered a contribution that I can pull out anytime tax free, or would I have to pay some type of penalty or tax in order to pull that money out if I needed it?
Permalink Submitted by Alan - IRA critic on Fri, 2021-09-10 14:44
Unless you made non deductible TIRA contributions, your TIRA is pre tax and conversions are taxable. Unless you are over 59.5, you have to hold each year’s conversion for 5 years to avoid paying a 10% penalty when you withdraw conversions from a Roth IRA. This requirements prevents a taxpayer from using conversions to sidestep the penalty if you just took the distribution from a TIRA. Therefore, if you think you will need to withdraw a conversion in under 5 years, you face the penalty, but will also have paid the taxes earlier, for the conversion year. Conversely, if you make a regular Roth IRA contribution, these amounts can be withdrawn anytime without tax or penalty, and your regular contributions come out before any of your conversions.