dmertz
Level 15

Retirement tax questions

When you did the $1,100 Roth conversion, your traditional IRA(s) contained $1,000 of nondeductible contributions and $100 of earnings, all of which was converted to Roth.  Because $1,000 of the $1,100 Roth conversion was nontaxable due to having $1,000 of basis in nondeductible traditional IRA contributions, your Roth IRA received $1,000 of nontaxable conversion basis and $100 of taxable conversion basis.

 

If you take a distribution from the Roth IRA before 2028, the $100 of taxable basis will come out before the $1,000 of nontaxable basis, making he $100 subject to an early-distribution penalty if you are under age 59½ at the time (but no income tax because you already paid tax on that $100).  After 2028 your conversion will have met the 5-year rule for conversions and the penalty on the distribution of the $100 of taxable conversion basis will disappear.  Early-distribution penalties also disappear if you reach age 59½ before making the distribution.

 

For more details, see the Roth IRA section of IRS Pub 590-B:  https://www.irs.gov/pub/irs-pdf/p590b.pdf