The Roth Conversion Ladder – let’s talk about the elephant in the room. And by the elephant, I don’t mean the IRS. I mean the brokerages and the tax software/preparers. For this post, I’m going to play the devil’s advocate—because deep down, I do want to believe in the Roth Conversion Ladder.
So, has anyone exercised a Roth conversion prior to age 59½ without having met the other requirements for a qualified distribution? What I would be interested in knowing is what the 1099 looks like for the year of fund withdrawal and how the tax software treats it? I’m probably going to run an experiment with $10, to see how it turns out, but I’d like to know what it will say.
The reason I ask is that I see a lot of articles on the Roth Conversion Ladder from people who are or stand to benefit from it, but not a lot from financial institutions. A part of me thinks that SEPP is more widely publicized and acknowledged by financial institutions because it’s what allows annuities to distribute penalty free, prior to age 59½ and brokerages benefit from those. I don’t see them monetizing benefit from a Roth Conversion Ladder. Schwab and probably others, discourage people from taking non-qualified distributions by convincing people of the restrictions:
https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/withdrawal_rulesBut on the other hand, I’ve read the tax rules, forms, even code. What I see are rules that don’t explicitly dis-allow it, but don’t allow it either.
I would be interested in posts from people who have done it that have their investments with Vanguard, Schwab, Fidelity and that have done their taxes without jumping through loop-holes with Turbo Tax, TaxAct, and other tax programs. Do you have to have a discussion with your brokerage ahead of time?
Thanks