Converting Traditional IRA’s to Roth IRA’s

September 7th, 2009

Caution: If you convert your regular IRA to a Roth, watch out for this payout quirk.

You can be hit with a 10% penalty on withdrawals in the first five years after the conversion, even if you take out funds you converted from the IRA tax free. Normally, the penalty only applies to taxable withdrawals. But IRS regulations say the entire payout is hit with the 10% penalty unless you’ve turned 59½, are disabled or have elected to take a series of substantially equal distributions from the Roth.

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Entry Filed under: Tax Planning Tips

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