Traditional Conversion with Basis
51 years old
Traditional IRA with balance of 24,000 and a basis of 25,000 (all non-deductible contributions with a $1,000 loss)
Convert the entire $24,000 to a Roth on 1/10/2010 – no taxes due on conversion.
Next day take a complete distribution.
Question: What amount, (if any) will be charged the 10% early withdrawal penalty for not waiting 5 years and being under 59 1/2? Thanks.
Permalink Submitted by Alan Spross on Fri, 2009-12-18 19:04
No amount because the penalty only applies to the taxable portion of a conversion, and there was no taxable portion to this conversion. There is also a potential 1,000 misc itemized deduction for closing all TIRA accounts for an amount less than the basis.
Permalink Submitted by patrick Austin on Fri, 2009-12-18 19:41
Thanks Alan for the reply. I was just trying to make sure that I could get to the money if I had an emergency (without penalty). I assume that misc itemized deduct is limited to the amount over 2% of AGI? If it is, it won’t help me any.
Permalink Submitted by Alan Spross on Fri, 2009-12-18 23:26
Yes, the misc deduction is subject to the 2% AGI limit, but you could have other misc deductions that help get to the 2%. Or course, you must also be able to itemize and not have the AMT negate the deduction. Lots of contingencies to realizing that deduction.