Roth conversions before 59 1/2
This was discussed in 2010 (see text below). Are these still the rules? Thank you.
“The 10% tax does not apply to Roth conversions. This is stated on p 29 of the 2007 edition of Pub 590 under “Allowable Conversions.” However, the client must maintain the conversion dollars in the Roth for 5 years or pay the 10% penalty if he withdraws the converion funds from the Roth. This 5 year holding period prevents someone from doing a conversion just to get at the funds without paying a penalty.”
Permalink Submitted by Alan - IRA critic on Wed, 2014-07-30 19:36
The quote still applies. The penalty only applies to the taxable portion of a conversion, and the penalty will never apply to distributions after 59.5 regardless of when the conversion was done. Also, the penalty can be waived by other penalty exceptions such as higher education expenses, disability, high medical expenses, etc.