Generally, an early distribution withdrawal penalty is calculated from the taxable amount of the distribution. However, if you convert a traditional IRA to a Roth IRA and then take any distribution during a five-year period after the conversion, the entire distribution may be subject to the early withdrawal penalty regardless of the taxable amount.
A separate five-year period applies to each conversion and rollover. The five-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution begins on the date the amount or distribution was converted and is separately determined for each conversion and rollover. This five year period is not necessarily the same as the five-year period used for determining whether a distribution is a qualified distribution.
You will make this selection if you have a Roth distribution within the years of the date it was converted from a traditional IRA. This information can be reviewed in IRS Publication 590-A and IRS Publication 590-B.