Penalties for early Roth withdrawals
A rollover IRA converted to a Roth IRA in 2008 for estate planning reasons
We’re considering withdrawing the entire amount this year and paying the penalty. I’m assuming that the 5 yr rule still applies despite that it was a Roth Conversion AND the person is 78 yrs old
The account has gained in value, though modestly.
A) is there a penalty in such circumstances?
B) If so, how is the penalty computed?
Mike
Permalink Submitted by Alan Spross on Mon, 2010-09-20 20:34
Mike,
There is no early withdrawal penalty for failing to hold the conversion 5 years because the IRA owner has reached 59.5.
Therefore, the distribution is tax and penalty free up to the amount of his regular or conversion contributions. If he has earnings in his Roth and has not held a Roth IRA for 5 years, the earnings will be taxable, but again no early withdrawal penalty.
If he has any other Roth IRA accounts, they must be combined to determine any taxes due on a distribution.