Why must RMD be completed before doing ROTH conversion

[dmertz]

"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.

[user17717088430]

Thank you. I will assume you are correct, but without digging too deeply: The first reference to 408A(d)(3) that defines a Roth rollover as a taxable conversion is irrelevant, as taxes are due on all Roth conversions from a traditional IRA, whether as a result of an RMD or for any other reason. That would include funds rolled over that originated as an RMD. Section 403A(d)(3)(E) refers to "Special rules for contributions to which 2-year averaging applies." It does not expressly reference RMDs at all, and insofar as I am aware, RMDs are not "contributions to which two year averaging applies".  Perhaps you intended to refer to a different statute. 

[dmertz]

@user17717088430 , I referred to section 408(d)(3)(E) which prohibits rollovers of RMDs, not 408A(d)(3)(E).