Roth IRA Distribution
Let’s say I am over age 59 1/2 and I converted a $100,000 Traditional IRA to a Roth IRA on Jan 15, 2010. Two months later on March 15, 2010, I take a $50,000 distribution from the Roth. Would this distribution be considered a qualified distribution and thus not subject to tax (since it is a return of basis)? Or, do I have to wait the 5 years?
Permalink Submitted by Alan Spross on Wed, 2010-01-27 02:55
If this is your first Roth contribution, a distribution of the conversion is tax free since it has already been taxed, and penalty free because you are over 59.5. But any earnings distributed prior to 1/1/2015 would be taxable because the 5 year holding requirement for qualified distributions does not end until that date.
You can always distribute your regular and conversion contributions tax free even though your Roth is not yet qualified. There is also no early withdrawal penalty of any type after age 59.5, disability or death.
There are special rules with 2010 conversions only that result in accelerating the tax due date if you take distributions while planning to defer the conversion taxes into the 2011 and 2012 years. In your example, without the distribution you would report 50,000 in 2011 and 50,000 in 2012. But if you take out 50,000 in 2010, then your conversion income will be reported as 50,000 in 2010 and 2011 and nothing in 2012. This prevents you from doing a conversion to defer the tax when you really just want a distribution prior to 2012.
Permalink Submitted by Shelly Rostosky on Thu, 2010-01-28 00:07
Thank you for your reply.