IRA egg and money in nest © Donya Nedomam/Shutterstock.com

Dear Tax Talk,

I am 65 and converted an IRA to a Roth IRA. It was included on my 2010 tax return. What are the Roth IRA withdrawal rules? When can I begin withdrawals from the Roth IRA without paying income taxes?

— Ned

Dear Ned,

The funds that you moved from your traditional IRA account to your Roth IRA account in 2010 are called a “conversion contribution.” While you included the income on your tax return and paid income tax on the amount converted in 2010, you will not be subject to income tax or the 10 percent additional tax on early distributions at this time because you have already met the IRS 5-year requirement for those funds. If you had not met the 5-year rule, you would still be able to access the funds without penalty since you are older than 59 1/2.

The additional 10% tax on early distributions would have applied if you had taken a distribution within the 5-year period starting with the 1st day of the tax year in which you converted an amount from a traditional IRA (or rollover amount from a qualified retirement plan) to a Roth IRA. In your case, you did the Roth IRA conversion in 2010; therefore, you have already exceeded the 5-year requirement and do not owe any additional taxes.

9 ways to avoid the 10% penalty

The exceptions on the additional 10% tax include the following:

  • You are 59 1/2 years or older.
  • You are totally and permanently disabled.
  • You meet the requirements for and use the distribution to buy, build or rebuild a “1st home.”
  • You are a beneficiary of a deceased IRA owner.
  • You receive the distributions as part of a series of substantially equal payments.
  • You use the distributions to pay for medical insurance premiums while you are unemployed.
  • The distributions do not exceed your “qualified higher education expenses.”
  • The distribution is considered a “qualified reservist” distribution.
  • You have unreimbursed medical expenses that are allowed as a deduction on Schedule A, Itemized Deductions, that exceed the adjusted gross income limitation of 7.5% or 10%, depending on your age.

Thanks for the great question about Roth IRA withdrawal rules, and all the best to you during your retirement years.

Ask the adviser

To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

Promoted Stories