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I read the Roth IRA articles I - VI and I'm confused on the treatment of the distribution of a conversion with respect to the 10% penalty.

Say I contributed $ 2000 to my Roth IRA in year 1998. In year 2000 I converted $50,000 to my Roth IRA from a Traditional IRA and paid the appropriate taxes on the Traditional IRA distribution.

In year 2003 I'm age 63 and decide to distribute $52,000 from my Roth IRA. I understand that the first $2000 distributed is my contribution and will not be subject to tax or a 10% penalty.

Will the $50,000 conversion distibution be subject to the 10% penalty?

Roth IRA Article III seems to say that I meet the five year rule and will not incure the 10% penalty.

Roth IRA Article IV seems to say that I must look at the year of the conversion, in which case, I would not meet the 5 year rule and thus incur the 10% penalty.

Please help me understand these conversion rules.

Thanks, tennislau





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No. of Recommendations: 0
I read the Roth IRA articles I - VI and I'm confused on the treatment of the distribution of a conversion with respect to the 10% penalty.

Say I contributed $ 2000 to my Roth IRA in year 1998. In year 2000 I converted $50,000 to my Roth IRA from a Traditional IRA and paid the appropriate taxes on the Traditional IRA distribution.

In year 2003 I'm age 63 and decide to distribute $52,000 from my Roth IRA. I understand that the first $2000 distributed is my contribution and will not be subject to tax or a 10% penalty.

Will the $50,000 conversion distibution be subject to the 10% penalty?

Roth IRA Article III seems to say that I meet the five year rule and will not incure the 10% penalty.

Roth IRA Article IV seems to say that I must look at the year of the conversion, in which case, I would not meet the 5 year rule and thus incur the 10% penalty.


I believe the FAQ articles were written before a small but important change in the IRS's interpretation of the 5-year rule (or maybe it was in a legislative clean-up act?). You now look at a five tax-year period from the first year a contribution OR conversion was made into the Roth IRA. So I believe you would meet the rule as five years will have gone by since your first Roth contribution in 1998.

--Peter
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