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Retirement tax questions
Generally, use distribution code 2 with the IRA/SEP/SIMPLE box marked. Because a Roth conversion is not subject to an early-distribution penalty, there is no need to use code 3 if the entire distribution is converted to Roth. Boxes 1 and 2a must show the amount distributed from the traditional IRA. Be sure to answer all of the questions that follow. Pay the taxes with funds from another source to maximize the amount the ends up in the Roth IRA. Otherwise, if you have taxes withheld from the traditional IRA distribution and do not complete the conversion of the entire distribution by substituting other funds to indirectly convert to Roth the portion withheld for taxes, you'll need to use code 3 to avoid the early-distribution penalty on the portion withheld for taxes.