10% penalty - Age over 59 1/2

[Guest RBWarinner]

Please help me. I am quite confused on one technical aspect of conversion to the Roth IRA. In particular, I need to know if the 10% additional tax on premature distributions applies if a taxpayer is older than age 59½ at the time of conversion. I am wondering mainly about possible distributions, within the first five-taxable-year period, of amounts converted to a Roth from a traditional IRA.

Several experts on the Roth IRA website specifically indicate that a taxpayer that old is not subject to the 10% penalty. However, IRS Publication 17 (11-13-98) does not mention an exception for age when discussing this topic on page 127. Nor do Form 8606 and its penalty instructions on page 6. Form 5329 does mention age 59½, but page 6 of the Form 8606 instructions also states that Form 5329 instructions should be disregarded.

Right now I have no such 10% penalty. Naturally, I would like to know the downside before I convert.

[Guest TJG]

If you are over 59.5 now then the 10% penalty tax on nonqualified distributions from a Roth IRA would not apply to you. Remember though in order to avail yourself of the totally tax free distributions from the Roth IRA, you must satisfy the 5 year holding period.