Permalink Submitted by tomd37 on Mon, 2010-01-11 18:20
I don’t think there is a penalty incurred as long as you convert the full amount. That is to say as long as you do not have anything withheld from the conversion to pay federal tax. If you do have something withheld for tax, that amount is not converted and you would pay a 10% additional penalty on the amount withheld and not converted.
For example, assuming 25% tax bracket, $10,000 requested conversion amount with $2,500 requested withheld for tax. The amount actually converted is $7,500 and you would pay an additional tax penalty of $250. A distribution of $10,000 would be reported to you on a 1099-R and that $10,000 wqould be reported on lines 15a and 15b of Form 1040.
Permalink Submitted by tomd37 on Mon, 2010-01-11 18:20
I don’t think there is a penalty incurred as long as you convert the full amount. That is to say as long as you do not have anything withheld from the conversion to pay federal tax. If you do have something withheld for tax, that amount is not converted and you would pay a 10% additional penalty on the amount withheld and not converted.
For example, assuming 25% tax bracket, $10,000 requested conversion amount with $2,500 requested withheld for tax. The amount actually converted is $7,500 and you would pay an additional tax penalty of $250. A distribution of $10,000 would be reported to you on a 1099-R and that $10,000 wqould be reported on lines 15a and 15b of Form 1040.