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Bill, Enrolled Agent
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Experience:  EA, CEBS - 34 years experience providing financial advice
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Hi, I converted an IRA ($90,000) into a Roth in 2010. I chose

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Hi, I converted an IRA ($90,000) into a Roth in 2010. I chose to split my tax payments, thus I just paid the tax (2011 tax) on the first half ($45,000). Next year (tax year 2012) the second half (remaining $45,000) will be due. I have just been presented with a great real estate investment opportunity, but I will need to take an early withdraw from my Roth ($65,000) to make it happen. Since it has not yet been 5 years, I will have to take a 10% penalty. Question, If I take an early withdrawal now (2012), what wil be the tax implications? Would I just continue to pay the second part of the split as planned next year (tax year 2012) and thus my only hit would be the penalty? Thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  Bill replied 2 years ago.
Since you already included $45,000 of the $90,000 conversion on your 2011 return and will be including the other $45,000 on your 2012 return, there will be no additional income taxes due for withdrawing $65,000 in 2012. However, if you are under age 59 1/2 there will be a penalty of 10% ($6,500) since it is within the 5 year conversion period. If you are over age 59 1/2 the 10% penalty will not apply. I also assume that you have no other Roth IRA accounts with prior contributions or conversions.
Customer: replied 2 years ago.
Hi Bill. That is correct, I have no other Roth accounts with prior contributions or conversions. So... the IRS will understand that the 65,000 early withdrawal is from the same Roth account I have paid (and will be paying) on? My concern is that I will get a 1099-R saying I took an early withdrawal on the 65,000 and the IRS will then add that to my income even though the 65,000 has already been accounted for.
Expert:  Bill replied 2 years ago.

You will file Form 8606 with your 2012 tax return and complete Part III claiming $90,000 as your basis on line 24. - http://www.irs.gov/pub/irs-pdf/f8606.pdf This should clarify it to the IRS since you will also be completing lines 26 - 35 to reflect the taxable amount from the 2010 conversion - http://www.irs.gov/pub/irs-pdf/i8606.pdf

 

 

Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3077
Experience: EA, CEBS - 34 years experience providing financial advice
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