DIRECT ROLLOVER TO ROTH IRA & WITHDRAWAL
I have a client with an old 401(k). Wants to pull money out to pay 2008 tax bill. Can he rollover to Roth IRA in 2010, pay income tax on rollover, and then withdraw basis to avoid 10% penalty?
I have a client with an old 401(k). Wants to pull money out to pay 2008 tax bill. Can he rollover to Roth IRA in 2010, pay income tax on rollover, and then withdraw basis to avoid 10% penalty?
Permalink Submitted by Alan Spross on Mon, 2009-05-04 21:12
Tom,
The 5 year holding period and 10% early withdrawal penalty for conversions applies, unless he will be over 59.5 at the time of Roth distribution. In addition, if he opts to pay the conversion taxes in 2011 and 2012, the distribution will accelerate the due date for those taxes into the year the distribution was taken. Apparently he is planning to delay payment of the 2008 tax bill until 2010, which probably is not a good idea unless further delay will get him to 59.5 where he can avoid the penalty. If the IRS places a tax lien on his IRA, the distribution will also avoid the early withdrawal penalty, but only if the tax lien is actually executed.