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1099R code 2 for $13473 roth conversion of traditional IRA funds. Taxable, so far so good. Roth was opened in 2021. He has made contributions of $1650 to his Roth and had conversions of the aforementioned $13473 in 2023 and $5000 in 2021. He also has a 1099 R for $13200 with code J. I'm stumped on the penalty for early withdrawal. How much should it be?
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Pub 590B addresses this and details the ordering rules:
https://www.irs.gov/publications/p590b#en_US_2022_publink100089915
I love that we're halfway through Feb already and the 2023 pub hasn't been finalized yet. I find the PDFs easier to read/follow (especially if you have to use one of the worksheets) so it might be easier to read here:
https://www.irs.gov/pub/irs-pdf/p590b.pdf
Jump to Roth IRAs starting on page 31.
Or if you can tolerate the watermark on every page you can read the 2023 draft here:
https://www.irs.gov/pub/irs-dft/p590b--dft.pdf
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"How much should it be?"
I didn't see the taxpayer's age.
"Roth was opened in 2021"
And it seems, unless there is another Roth account somewhere that was opened earlier, there is/are 5-year rules that weren't met, either (age of account, timeframe of basis contributions).
"I'm stumped on the penalty for early withdrawal."
I like to list the actions according to the timeline sequence. That helps identify penalties vs taxable actions.
Don't yell at us; we're volunteers
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Only one Roth - opened in 2021. He is in his early 30s. (sorry, that was an important detail).
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That Basis of anything that he contributed directly to the Roth (not converted) is penalty free. Everything else has a 10% penalty.
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Contributions were $450 in 2021, and $600 each for 2022 and 2023.
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@taxesbydot wrote:
Contributions were $450 in 2021, and $600 each for 2022 and 2023.
$1650 is not subject to a penalty, but everything else is penalized.
[EDIT]: I'm assuming the withdrawal has not been "rolled over".
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Thank you all so very much.