Direct conversion

Definition

A Roth Conversion that occurs directly between the delivering and receiving Roth IRA.
The delivering account can be a Traditional IRA, a SEP IRA or a SIMPLE IRA. For a SIMPLE IRA, the assets cannot be converted to a Roth IRA, unless it has been at least two-years since the first contribution was made to the SIMPLE IRA.  

Under this option, the assets are made payable to the Roth IRA custodian. In most cases, the conversion occurs between IRAs at the same custodian.

Effective January 1,2008 , Direct Roth conversions can occur from qualified plans, 457(b) and 403(b) plans to Roth IRAs. Prior to this date, the assets  must first be rolled to a Traditional IRA or SEP IRA before being converted to a Roth IRA.

Referring Cite

IRC §408A, IRS Publication 590

Additional Helpful Information

• Roth IRA conversions are not subject to the 10 percent early distribution penalty that applies to distributions that occur before the IRA owner reaches age 59 ½ [IRC §408A(d)(3)(A)(ii)]
• A Roth conversion can be nullified (make void) VIA a recharacterization

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