A conversion of a 72t IRA can be done without a modification, but the client must be very careful not to get tripped up in the process. This does not happen too often in a 72t plan because the taxes need to be paid on the conversion. The resulting Roth IRA would be part of the 72t plan immediately upon full or partial conversion, so the client would have a choice of which type of IRA to take future plan payments from.

What is interesting here is that the client could tap the Roth IRA if he wanted to and the conversions would not be subject to the 5 year holding requirement because the 72t plan itself is an exception to the early withdrawal penalty. After the conversion, the total 72t annual distribution must come from some combination of the remaining TIRA account and the conversion Roth account.

The 72t distribution itself CANNOT be converted, so the client will be taxed on the 72t distribution plus the conversion. Then, when you figure the two year deferral option on paying the taxes, this can be helpful to someone wishing to convert while still deferring some of the tax cost. Client should be aware that if the conversion Roth is tapped for distributions prior to 2012, it will accelerate the income reporting for the conversion, and therefore the tax bill. You can see that there are several moving parts here, and that creates the risk of error.

Here is a copy of IRS Reg 1.408A-4:
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Q–12. Can an individual convert a traditional IRA to a Roth IRA if he or she is receiving substantially equal periodic payments within the meaning of section 72(t)(2)(A)(iv) from that traditional IRA?

A–12. Yes. Not only is the conversion amount itself not subject to the early distribution tax under section 72(t), but the conversion amount is also not treated as a distribution for purposes of determining whether a modification within the meaning of section 72(t)(4)(A) has occurred. Distributions from the Roth IRA that are part of the original series of substantially equal periodic payments will be nonqualified distributions from the Roth IRA until they meet the requirements for being a qualified distribution, described in §1.408A–6 A–1(b). The additional 10-percent tax under section 72(t) will not apply to the extent that these nonqualified distributions are part of a series of substantially equal periodic payments. Nevertheless, to the extent that such distributions are allocable to a 1998 conversion contribution with respect to which the 4-year spread for the resultant income inclusion applies (see A–8 of this section) and are received during 1998, 1999, or 2000, the special acceleration rules of §1.408A–6 A–6 apply. However, if the original series of substantially equal periodic payments does not continue to be distributed in substantially equal periodic payments from the Roth IRA after the conversion, the series of payments will have been modified and, if this modification occurs within 5 years of the first payment or prior to the individual becoming disabled or attaining age 59 1/2, the taxpayer will be subject to the recapture tax of section 72(t)(4)(A).
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It would be best to complete the 72t distributions first since a conversion is treated as a distribution and rollover even when done as a direct trustee transfer. Also, while the above copied Reg is still in place and apparently overrides the inability to transfer a 72t plan to another type of retirement plan, recent Notice 2022-6 does not refer to such conversions or provide additional clarification. And while the above copied Reg seems to assume a total conversion, a total conversion is not practical in most situations. Over the years there has been some concern that a partial conversion is not authorized by this Reg, and I am not aware that the IRS has ever clarified the partial conversion question.

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