Roth Conversion, 10% penalty on the taxes with held
If under age 50 1/2, and convert Traditional IRA to Roth IRA, and they with to with hold taxes….there is a 10% “before 50 1/2” penalty on the taxes with held because the taxes with held are considered a non-qualified withdraw? Thanks for the reminder. if they don’t with hold taxes, and pay tax at tax time…there is no penalty? Thank you again for the guidance.
Permalink Submitted by Alan - IRA critic on Fri, 2019-07-19 17:16
The penalty is for distributions prior to 59.5 not rolled over. However, for the withholding the penalty that applies is an early withdrawal penalty on a TIRA distribution, so that distribution is neither qualified or non qualified, just early. It is one of the reasons that it is always recommended to pay taxes from non IRA funds when you convert. Another reason is that this money is usually lost to any type of IRA, although some people have intentionally withheld from the TIRA to pay taxes via withholding (instead of estimates). They then roll over the amount withheld to erase the tax and penalty, so the conversion is complete but their taxes paid in is via withholding rather than estimates, so it will not matter what date the conversion is.
Permalink Submitted by Kerry Schepers on Tue, 2019-08-20 20:54
certainly meant to say 59.5….thank you 🙂