Roth IRA
I have a client that wants to convert part of his retirement savings to a roth. He does not have any outside savings to pay the income taxes. Is this a sound strategy? Second, if he does convert, and is over 59 1/2, will he be subject to penalties if he withdraws money prior to the 5 year rule expiring?
Permalink Submitted by Alan - IRA critic on Sat, 2014-01-04 02:25
The rule of thumb for the benefit of a conversion is still whether his conversion tax rate will be equal or lower than the expected rate in retirement. He could have withholding taken from the conversion distribution rather than taking an IRA distribution later to pay the taxes. There is no penalty since he is over 59.5, and there is also no 5 year holding period for his conversion funds for the same reason.