"There is no statute that authorizes the IRS to prevent traditional IRA RMD funds, on which taxes are fully paid, from being converted to a Roth."
The statutes absolutely do prohibit such a conversion. Section 408A(d)(3) defines a Roth conversion as a taxable rollover. Section 408(d)(3)(E) prohibits rollover of an RMD. This means that if any portion of an RMD is deposited into a Roth IRA, it is required to be treated as an ordinary Roth IRA contribution, not a Roth conversion. (The term "Roth conversion" has specific meaning in the tax code, referring to section 408A(d)(3)(C).)
Congress delegated to the IRS the authority to develop the regulations necessary to implement the statutes. CFR 1.408-8(b)(3) establishes that the first dollars out of an individual's IRAs are RMD until the RMD for the individual's traditional IRAs has been satisfied, eliminating ambiguity about which distribution is an RMD.
