Question

Question re: strategy to avoid 10% penalty on roth conversion (assum use IRA funds to pay conversion tax, and IRA holder is less than 59.5) Thinking of this: - Start with Traditional IRA (T1); has $1000 in it. - Create another TIRA (T2) and move $350 into it...sufficient to later pay tax on the $1000. - In 2009, Elect 72T treatment of T2... and take more than the minimum. Take $140 per year, starting in 2009. This IRA will be sucked dry in 3 years (with a distribution of only $70 in year 3.) 2009-2011, the $350 of distributions will be partially offset by (say) $123k of associated taxes. So... - In 2010, convert T1 to Roth (R1). R1 has $650 in it. Taxes on conversion of $650 spread over 2 years... pmts made in 2011, 2012. Assume tax liab of conversion = $227... half/year. - 72T election started in 2009, with first 72t distribution in 2009. - Roth convet in 2010. In 2010, take 2nd 72T distn. And pay $114 conv tax. - Pay remaining $113 conv tx nxt yr Taxes paid, No penalty. OK?