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I am considering converting my regular IRA to a Roth IRA.

Customer Question
Can I use the cash...
I am considering converting my regular IRA to a Roth IRA. Can I use the cash that I converted to pay the taxes that would be due. Example .. I convert 1 million dollars to a Roth this year (2010). Next year when the tax is due, can I withdraw the approximately $300k from the Roth and pay the taxes.

I know I have the option to put the tax off to 2011 and 2012, so there's no need to go into that aspect of it.

John T.
Submitted: 7 years ago.Category: Tax
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Answered in 42 minutes by:
12/2/2010
Tax Professional: MequonCPA, Certified Public Accountant (CPA) replied 7 years ago
MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,342
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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Hi John -

Yes you can take the funds out of your Roth to pay the tax. However, in addition to the deferred tax on the conversion, you will be subject to the 10% penalty for early withdrawal because you did not keep the rollover contribution in the Roth IRA for at least 5 years. The tax and penalty are a big price to pay for the conversion. If at all possible, it is recommended that you use funds other than the IRA to pay the tax otherwise, it will take substantially longer for you to become financially whole due to the depletion of your tax deferred account.

Edited by Steven Meyerson, CPA on 12/3/2010 at 12:00 AM EST
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Customer reply replied 7 years ago

I am over 59 1/2 .. I'm actually 71. Does the 5 year rule and penalty still apply. It is my understanding that withdrawals can be made before the 5 years.

Tax Professional: MequonCPA, Certified Public Accountant (CPA) replied 7 years ago
John -

Because you are substantially over 591/2, the 10% penalty will not apply to the withdrawal of contributions/conversion amounts prior to the expiration of the 5 year period.
MequonCPA
MequonCPA, Certified Public Accountant (CPA)
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