The new retirement savings time bomb

The new retirement savings time bomb

Ask Bob: Will An In-plan Roth Conversion Trigger the 10% Penalty Tax?

Andy Ives, an IRA Analyst with Ed Slott and Company, answers a reader's question about in-plan Roth conversions.
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Question

Will an in-plan Roth conversion trigger the 10% penalty tax due to the mandatory 20% withholding on the conversion? I am 56 years old

Answer

No, an in-plan Roth conversion will not trigger the 10% penalty for those under 59½, said Andy Ives, an IRA Analyst with Ed Slott and Company. 

“A direct in-plan conversion will also not require the 20% mandatory withholding because it is not a distribution to the plan participant,” he said. “It will trigger a taxable event, however, and the plan participant will need to account for that conversion income.”

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Question

Will an in-plan Roth conversion trigger the 10% penalty tax due to the mandatory 20% withholding on the conversion? I am 56 years old

Answer

No, an in-plan Roth conversion will not trigger the 10% penalty for those under 59½, said Andy Ives, an IRA Analyst with Ed Slott and Company. 

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