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chrisdc
New Member

I was unemployed this year and will be at low tax bracket. I would like to move money from my tax deferred IRA to a Roth IRA. I want to avoid 10% penalty for early draw

 
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3 Replies

I was unemployed this year and will be at low tax bracket. I would like to move money from my tax deferred IRA to a Roth IRA. I want to avoid 10% penalty for early draw

To avoid the penalty and any mandatory withholding on a DISTRIBUTION you will not take a distribution... you should do a trustee to trustee CONVERSION  instead.  Talk to the IRA custodian where the money is going to set up the transfer properly.  Do NOT NOT NOT have a check sent to you ... it must go to the new trustee directly. 

Hal_Al
Level 15

I was unemployed this year and will be at low tax bracket. I would like to move money from my tax deferred IRA to a Roth IRA. I want to avoid 10% penalty for early draw

The trustee/custodian that has your current traditional IRA should be able to  handle the direct conversion.  Contact them.  

Carl
Level 15

I was unemployed this year and will be at low tax bracket. I would like to move money from my tax deferred IRA to a Roth IRA. I want to avoid 10% penalty for early draw

For starters, understand that if you so much as "touch" that money, a 1099-R will be issued to you, which you will have to report. So *you* don't want to transfer anything. What you need to do is one of two things.

 - Get with the current administrator of your traditional IRA and do a conversion of that traditional IRA to a ROTH IRA. When you do that a 1099-R will be issued to you with a code G in box 7. Then when you enter that 1099-R in the TurboTax program, you *will* be taxed on that money and no penalty will be assessed.

 - If you will be putting that money into a ROTH that is under different administration than your current IRA is, then first do the conversion as above. Once that conversion is complete then contact the administrator of the "new" ROTH IRA account and arrange a "trustee-to-trustee transfer" from the old ROTH, to the new ROTH.

When you do this, you will only get the 1099-R for the conversion as above, and no 1099-R will be issued for the trustee-to-trustee transfer since you never touched the money yourself.

 

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