Dealing with engineers
I have a couple of client that are both engineer’s and they want to know specifically what part of the tax code allows a person OVER the age of 59 1/2 to make penalty free withdrawls from a ROTH ira after it has been converted from a regular IRA. I have told them as have many other advisors and they just willn’t believe us.
Thanks,
Permalink Submitted by Alan Spross on Fri, 2009-11-20 20:06
Page 67 of Pub 590 is very clear that the penalty does not apply if one of the exceptions (Sec 72t) applies. The first exception listed is reaching age 59.5.
Further, the following is copied from the IRS Regs on Roth IRA distributions. See the final sentence in (b):
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Q–5. Will the additional tax under 72(t) apply to the amount of a distribution that is not a qualified distribution?
A–5. (a) The 10-percent additional tax under section 72(t) will apply (unless the distribution is excepted under section 72(t)) to any distribution from a Roth IRA includible in gross income.
(b) The 10-percent additional tax under section 72(t) also applies to a nonqualified distribution, even if it is not then includible in gross income, to the extent it is allocable to a conversion contribution, if the distribution is made within the 5-taxable-year period beginning with the first day of the individual’s taxable year in which the conversion contribution was made. The 5-taxable-year period ends on the last day of the individual’s fifth consecutive taxable year beginning with the taxable year described in the preceding sentence. For purposes of applying the tax, only the amount of the conversion contribution includible in gross income as a result of the conversion is taken into account. The exceptions under section 72(t) also apply to such a distribution.
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Permalink Submitted by Anonymous (not verified) on Sat, 2009-11-21 08:03
A logical way to explain it is this:
The 10% penalty itself is a “premature distribution” penalty, implying that it occurs prior to reaching that magical age of 59 1/2. You can never apply this penalty to someone over 59 1/2, by definition.
pmk