Keep these rules in mind to avoid penalties:
Only certain types of transfers are allowed.
The conversion needs to be one of the following:
1>A rollover, where you receive the money from your traditional IRA and deposit it into the Roth IRA within 60 days.
2>A trustee-to-trustee transfer, where the traditional IRA provider sends the money directly to your Roth IRA provider.
3>A “same trustee transfer,” where your money goes from the traditional IRA to the Roth at the same financial institution.
There’s a pro rata rule for backdoor Roths
The IRS requires rollovers from traditional IRAs to Roth IRAs to be done pro rata. Here’s how it works: When determining your tax bill on a conversion from a traditional IRA to a Roth IRA, the IRS is going to look at all of your traditional IRAs combined.
If all of your traditional IRAs combined consist of, say, 70% pretax money and 30% after-tax money, that ratio determines what percentage of the money you convert to a Roth is going to be taxable. In this example, no matter how much money you convert or which IRA you pull the money from, 70% of the amount you convert to the Roth will be taxable. You can’t choose to convert only after-tax money; the IRS won’t allow it
And a word about timing: the IRS applies the pro rata rule to your total IRA balance at year-end, not at the time of conversion.