Roth Conversion and then early distribution

Forum|Forum|2 years ago
February 14, 2024
3 replies
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1099R code 2 for $13473 roth conversion of traditional IRA funds. Taxable, so far so good. Roth was opened in 2021. He has made contributions of $1650 to his Roth and had conversions of the aforementioned $13473 in 2023 and $5000 in 2021. He also has a 1099 R for $13200 with code J. I'm stumped on the penalty for early withdrawal. How much should it be?

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Best answer by TaxGuyBill

Contributions were $450 in 2021, and $600 each for 2022 and 2023.

@taxesbydot wrote:

Contributions were $450 in 2021, and $600 each for 2022 and 2023.

$1650 is not subject to a penalty, but everything else is penalized.

[EDIT]: I'm assuming the withdrawal has not been "rolled over".

rbynaker

Level 13

Pub 590B addresses this and details the ordering rules:

https://www.irs.gov/publications/p590b#en_US_2022_publink100089915

I love that we're halfway through Feb already and the 2023 pub hasn't been finalized yet. I find the PDFs easier to read/follow (especially if you have to use one of the worksheets) so it might be easier to read here:

https://www.irs.gov/pub/irs-pdf/p590b.pdf

Jump to Roth IRAs starting on page 31.

Or if you can tolerate the watermark on every page you can read the 2023 draft here:

https://www.irs.gov/pub/irs-dft/p590b--dft.pdf

qbteachmt

Level 15

"How much should it be?"

I didn't see the taxpayer's age.

"Roth was opened in 2021"

And it seems, unless there is another Roth account somewhere that was opened earlier, there is/are 5-year rules that weren't met, either (age of account, timeframe of basis contributions).

"I'm stumped on the penalty for early withdrawal."

I like to list the actions according to the timeline sequence. That helps identify penalties vs taxable actions.

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