pre 59 1/2 Roth Distribution

[Guest mrvasquez]

In 1998 I converted $4000 from a traditional IRA to a Roth IRA. I split the amount over the next four years as income on my tax statements, but never contributed to the Roth.

In 2003, after 5 years, I closed the Roth IRA and received $3500 in distributions (loss of $500). The information in Pub 590 and other sources doens't make it clear to me if:

1) The $3500 is taxable (I don't see why it should be, wasn't that the point of splitting the amount to four chunks of $1000 each for 1998 through 2001?)

2) If the 10% penalty must be applied, and if so, in which tax form?

Thanks

Miguel

[JAMES PATRICK]

Since you paid taxes when you converted, the funds are not taxed when you take a distribution. As the conversion took place over 5 years ago there is also NO 10% penalty, and as you had a loss and therefore did not withdraw any earnings there is no tax or penalty on them.

You may have the ability to deduct this loss on Schedule A if it was the only Roth you had and if you itemize. Chances are pretty slim it would be worth your while.