Roth Conversion,Roth Rollover--10% Penalty Applies?

[Guest David Hammond SRS]

A 45 year old converts a traditional IRA into a Roth IRA in 1998. In 1999 this individual takes a full distribution from the ROTH and within 60 days successfully rolls it into another ROTH

IRA (or back into the original ROTH).

Does the completion of the rollover avoid application of the 10% early withdrawal penalty OR will the penalty be imposed because of the withdrawal of the conversion monies within the non-exclusion period for the converted funds?

Yes, this is a real circumstance.

Yes, I'm looking for an authoritative answer.

Yes, my thanks to you on the Message Board for your input.

Your Fearless Moderator,

Dave Hammond--Sentinel Retirement Services, Wakefield, MA

[John Olsen]

Both ROTH and Regular IRAs have a 60-day "window" during which any withdrawals may be re-deposited [in the same or a different account, so long as it's TITLED the same) without triggering either tax on the income (if any) or the 72(t) penalty. Your facts situation has two parts. The Regular IRA-Roth conversion was one. There was no 10% penalty, because that penalty does not apply to conversions. The second part concerns the "window", which applies, as I said, to Roths, as well as regular IRAs.

[Guest Del Rae]

You peaked my curiousity... so I did a search... The logic was there that there should be no penalties as many items that aren't specifically spelled out in IRC 408A (the Roth Code section) defer to IRC 408 (the deduction IRA Code section. But logic and taxes don't always blend.

I found, of course, a lot of discussion about nonRoths to Roths, but not much on Roths to Roths... but I did find in IRS Pub 553 the following:

"You can withdrawl all or part of the assets from a Roth IRA and reinvest them (within 60 days) in another Roth IRA. If properly (and timely) rolled over, the 10% additional tax on early withdrawals will not apply. You must roll over into the second Roth IRA the same property you received from the first one. You can roll over part of the withdrawal and keep the rest of it. The amount you keep is a distribution."

Anybody find anything else, IRS Pubs. aren't, in my experience, always gospel.