10% distribution penalty on conversion Roth

[Guest Ross McKinney]

This is killing me:

Facts - My 51 year-old father converted his Trad. IRA to a Roth on 3/1/99; elected 4-yr. spread starting on 1998 tax return; no additional contributions have been made since conversion.

Question: When can he start taking distributions w/o getting hit with the 10% early-withdrawal penalty? Is it 1/1/03 or 1/1/04? I ask because I don't know if the 5-yr. waiting period begins with (a) the first day of the year in which the conversion contribution is made or (B) the the first day of the tax year that the Roth IRA contribution relates to (being 1998).

Thanks,

- Ross McKinney

[JAMES PATRICK]

The facts as you present them don't appear correct and may indicate that you have a problem.

The only year that you could do a 4 year "spread" was 1998. You had to do the conversion in 1998, unless you rolled over the IRA in 1998 (took the money out of the IRA) and within 60 days completed the conversion to a Roth. 3/1/1999 is the 60th day of 1999, so he may not have a valid conversion.

[Guest Ross McKinney]

O.K. : revised facts - assuming he rolled and converted BEFORE 1/1/99 (i hope this is the case; he was just guessing on the 3/1/99 date) , making it a valid conversion, when can he start taking distributions and avoid the 10% penalty?

Thanks,

- Ross

[JAMES PATRICK]

If he did the conversion in 1998 than he can withdraw CONVERSION funds with no penalty on 1/1/2003. Actually he could withdraw them earlier if the funds were used for a reason that is excepted from the 10% penalty, like education,1st time home buyer,disability,etc.

There is an ordering sequence to Roth distributions which says contributions are out first, next is conversions and last is earnings.

[Guest dyoung14]

I also converted my SEP-IRA to a Roth - IRA in 98 and now want to make a withdrawl, but my custodian (Schwab) doesn't think I can do it w/o a 10% penalty.

Do you have any info on relevant tax info that I can give them to substantiate my position. It's pitiful that these experts don't know for sure.

D

[BPickerCPA]

Any 1998 conversion can be withdrawn this Thursday (1/2/03) without penalty.

[Appleby]

Refer them to the Final Roth IRA regs which can be found at http://www.rothira.com/rothregsf.htm