Ed Slott: 60-day Roth conversion bypasses one-rollover rule

Two IRA distributions in one year and a client who wants both back runs straight into the one-rollover-per-year rule. Ed Slott's IRAHelp column shows the workaround. The client pulls $50,000 from a traditional IRA for a house down payment, expecting to roll the money back after his old home sells. A week later he draws another $30,000. Once the sale closes, he wants to restore the full $80,000, but the rule allows only one of those returns.

The advisor steers the second distribution into a Roth IRA. Roth conversions do not count against the one-rollover limit, Slott writes, and the $30,000 is taxable regardless. The client returns the $50,000 to the traditional IRA and, within the 60-day window, moves the $30,000 into a Roth. Slott calls the maneuver valid "since the beginning of Roth time" and sometimes a necessity.

The transaction is a rollover, not a transfer, which means the paperwork carries two forms. The traditional IRA custodian files Form 1099-R showing the full $80,000 distribution in Box 1. The Roth IRA custodian files Form 5498 reporting the $30,000 conversion in Box 3. Slott says properly coded forms are essential — they tell the IRS what happened and track the five-year clocks inside the Roth.

The same-custodian version of a conversion draws little attention. One firm moves the money between accounts and issues both forms, so the match is obvious. Slott says some custodians get a little wary when the conversion arrives as a 60-day rollover. The wariness is about reporting, not the law. The 60-day conversion is an acceptable way to execute a Roth conversion; what matters is that the receiving custodian codes it correctly.

For an advisor, the practical check is the 5498. The IRS uses that form to track the five-year clocks inside a Roth, and the conversion belongs in Box 3. The client pays tax on the distribution either way. What hangs on the coding is whether future Roth distributions will be treated as qualified — which is exactly the thing the form tracks. That is the detail an advisor gets paid to protect.