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ROTH Conversions and CRD's


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Haven't been able to find an answer to this question anywhere:

A 50 year old client has a ROTH IRA that only has the funds that were converted from a traditional IRA (including earnings) a year ago.  The owner wants to take a distribution (no earnings) and he would owe 10% early withdrawal penalty for breaking the 5 year rule on conversion funds. 

No problem here, however, he meets the qualifications for a covid-19 distribution which are not subject to the 10% early withdrawal penalty.  Would this exemption for a CRD override the 10% early withdrawal penalty for breaking the 5 year rule?  I've been unable to find any clarification on this.  Anyone have any thoughts or cites on this?  Thanks

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Oldtpa, if it's a CRD, 72(t) does not apply. To be a CRD the amount must be from a plan described in IRC sec. 402(c)(8), which in (B)(i) says "[IRA's] described in Section 408(a)," which of course means traditional IRA's. But 408A(a) says you treat Roth IRA's the same as other IRA's. So I would say no 10% tax, but I guess until the IRS issues guidance that connects the trail of bread crumbs (or doesn't), no one will know for sure.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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