Roth conversion questions

Submitted by Robert Stevens on Sat, 2014-03-29 19:35

I’m a young investor who recently put his money into a traditional IRA as opposed to a Roth so as to lower my adjusted gross income enough to qualify for the full benefit of the savers credit. If I decided to do a Roth conversion sometime in the future and claim the funds as taxable income, how long do I have to wait to withdraw that money tax and penalty free? Do I have to be 59.5 or using it for one of the exceptions like first time home buyer? Please give the sources to your answers if you have them 



Submitted by Alan - IRA critic on Sat, 2014-03-29 20:07

  • Taxation of Roth IRA distributions is described starting on p 70 of Pub 590. If your Roth is funded only by conversions from a TIRA funded by deductible contributions, the distribution of those conversions is tax free, but there is a 5 year holding period to avoid a 10% penalty. After 5 years, the converted amounts can be distributed both tax and penalty free. Earnings on the conversion are taxable and subject to penalty until you have held the Roth 5 years and have reached 59.5.
  • A first time home buyer distribution will waive the 10% penalty on conversion distributions up to 10,000 lifetime.
  • A distribution from the Roth IRA will cause a reduction of eligible contributions for at least 3 years for the savers credit.

 

Submitted by Robert Stevens on Sat, 2014-03-29 20:40

very much

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