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Taxes when transferring a security from traditional IRA to Roth IRA

When moving a security from a traditional IRA to a Roth IRA within the same institution, how is it taxed? Is there a penalty when under age 59-1/2?

 

In other words, is it taxed as income? Or is it taxed as capital gain based on purchase value and value at transfer?

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Accepted Solutions
MinhT1
Expert Alumni

Taxes when transferring a security from traditional IRA to Roth IRA

The transfer from a Traditional IRA to a Roth IRA is called a Roth conversion which is taxable as ordinary income. The taxable amount is the entire amount of the conversion. There is no penalty for the conversion even if you are aged under 59 1/2.

 

Please read this IRS document, especially the section on How do I convert my traditional IRA to a Roth IRA?

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2 Replies

Taxes when transferring a security from traditional IRA to Roth IRA

No penalty but the entire amount will be taxed at your normal income tax rate. 

MinhT1
Expert Alumni

Taxes when transferring a security from traditional IRA to Roth IRA

The transfer from a Traditional IRA to a Roth IRA is called a Roth conversion which is taxable as ordinary income. The taxable amount is the entire amount of the conversion. There is no penalty for the conversion even if you are aged under 59 1/2.

 

Please read this IRS document, especially the section on How do I convert my traditional IRA to a Roth IRA?

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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