Will I owe taxes on money withdrawn from a partially-converted Roth ...

My wife and I did a partial Roth IRA conversion in 2010. Half of the taxes were paid on our 2011 return. If need be, can we withdraw that portion tax- and penalty-free?
-- Greg, Mission Viejo, Calif.

First, a small clarification: individual retirement accounts (IRA's) can't be jointly owned, so the distribution rules apply either to you or your spouse ? whoever's name is on the account.

Now, the answer: Should you take a withdrawal, additional taxes shouldn't be due. Since you took advantage of the 2010 Roth conversion rules (a one-time only deal), half of the tax bill generated by that conversion was paid last year, while the second half remains due when you file your 2012 taxes.

Whether you'll owe a 10% early withdrawal penalty, on the other hand, depends largely on if you'll be age 59.5 at the end of this calendar year, explains IRA expert Ed Slott. The rules state that to avoid the penalty, you must be 59.5 or the conversion dollars must have been held in your Roth IRA for five years ? whichever comes first. That said, a few exceptions apply. For example, the withdrawal can be penalty-free when using up to $10,000 of the funds to purchase a first home.

Be aware that if you already owned a Roth IRA prior to the conversion, ordering rules are in place when it comes to withdrawals ? and all of your Roth IRAs are treated as one account. Here's how the IRS views them:
1. The first dollars withdrawn are original contributions. These can be withdrawn tax-free and penalty-free, regardless of age.
2. Next come conversion dollars. (See rules above.)
Finally, earnings are withdrawn. These are tax- and penalty-free if you've had a Roth IRA for five years and you are age 59.5 or older. Again, some exceptions apply to the penalty.

Head spinning? A good tax pro can help untangle the potential hit.

-- Stephanie AuWerter

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