I wrote in about two months ago about my IRA dilemma. I did two IRA rollovers within a 12-month period from the same traditional IRA account. My efforts with the banks and brokerage firm involved have not yielded any solutions. At this point I am facing withdrawing the funds from the smaller of the two accounts and paying taxes on it before October 2014.

It occurred to me that perhaps I could do a Roth conversion on the funds in the second rollover account (which is the smaller one). That would still have me paying taxes on it, but I would gain a Roth account, rather than moving the funds to a taxable account.

I have been through IRS publications 17 and 590. They clearly explain that more than one rollover is not allowed, but do not define what the incorrectly placed funds are called or what must be done with them. For the 60-day rule, that information is provided. There is no statement that a Roth conversion is allowed in this situation, but neither is it forbidden.

I will be getting a single 1099-R from the brokerage house that did the two rollovers. If I do a Roth conversion with this second rollover, then the funds on the 1099-R from the first rollover would still be legitimate, with no tax due. Funds for the second rollover would be treated as a Roth conversion, and taxes would have to be paid. The receiving bank on the second rollover presumably will issue a 5498. But, that traditional IRA account would no longer exist, and all funds rolled out of the IRA account would be accounted for on my tax return, and taxes due would have been paid.

The bank that accepted the second rollover will allow me to do a Roth conversion. I would do it as a same-trustee transfer. It seems like this might be a risk worth taking if I could be reasonably sure that should the IRS not allow it at a later date, that I would NOT be charged the 6% per year penalty (I would have already paid the taxes due and at the right time). I would also worry about being taxed twice if the IRS made me correct it, once for the incorrect IRA rollover, and once for the Roth conversion of that rollover. Still, it seems like the IRS would not apply taxes twice to the same IRA money.

Is this viable? Any thoughts on whether this approach would be satisfactory to the IRS? This seems to be the only possible option left to me.

Thanks again for your help.