Roth Conversion Penalty?
If you are under 59 1/2 and pay the taxes from the funds being converted from an TIRA to a Roth, would you be assessed the 10% penalty on the amount used to pay the tax?
If you are under 59 1/2 and pay the taxes from the funds being converted from an TIRA to a Roth, would you be assessed the 10% penalty on the amount used to pay the tax?
Permalink Submitted by Anonymous (not verified) on Thu, 2009-02-19 03:48
Yes, this is one of the main reasons that it is highly recommended that non IRA funds be used to pay the taxes on Roth conversions. The amount withheld is subject to both tax and the early withdrawal penalty, and is lost to the tax deferral offered in either the Roth or the traditional IRA. If the conversion distribution was processed within the past 60 days, and you have other funds available, the amount withheld could be rolled over into either the Roth or back to the traditional IRA. That would put you in the same position as if you had paid the tax with other funds, but you would be out the money right away.