Q: If I use the Roth backdoor technique when I'm less than 59 years old, do I have to pay a 10% penalty on the converted amount?
A: Great question! No, there is no penalty to convert as you aren't taking a distribution. To maximize the conversion, use outside assets to pay whatever tax may be due. If you take taxes from the traditional IRA, you may water down the effectiveness dramatically. It should be noted that if you withdraw funds from the converted Roth IRA within 5 years of the conversion, the 10% penalty will apply. There are no exceptions to this. Good luck!
Roy Larsen is a Certified Financial Planner™ practitioner and Fee Only Wealth Manager who resides outside of Atlanta, Georgia.
Roy's Financial Blog contains articles on multiple financial life events as well as his favorite questions from he receives from around the country as a an expert panel member for Investopedia's Advisor Insights.