Advanced Underwriting Consultants

Ask the Experts – October 6, 2014

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day. 

Question: I have a 50 year old client who recently did an in-service conversion of her 403b account to a designated Roth account.  She now wants to take a hardship distribution from her designated Roth account.  Does she have to worry about the 10% penalty tax on the distribution of converted amounts?

Answer:  Yes.

Just as with regular Roth IRA conversions, there is a special tax rule about withdrawing converted amounts within five years of the conversion.  Here is the applicable Q & A from Notice 2010-84.

Q-12. Are there any special rules relating to the application of the 10% additional tax under § 72(t) for distributions allocable to the taxable amount of an in-plan Roth rollover made within the preceding 5 years?

A-12. Yes, pursuant to §§ 402A(c)(4)(D) and 408A(d)(3)(F), if an amount allocable to the taxable amount of an in-plan Roth rollover is distributed within the 5-taxable-year period beginning with the first day of the participant’s taxable year in which the rollover was made, the amount distributed is treated as includible in gross income for the purpose of applying § 72(t) to the distribution.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.