A Roth IRA conversion is moving money from a traditional IRA (or a SEP or SIMPLE IRA) into a Roth IRA, paying income tax on it now so that qualified withdrawals later are tax-free. According to the IRS, the conversion is taxed on any untaxed amounts in the traditional IRA, meaning deductible contributions and earnings; money you already paid tax on (nondeductible contributions) is not taxed again. You report it on Form 8606.
You can convert in three ways: a 60-day rollover (you receive the money and deposit it in the Roth IRA within 60 days), a trustee-to-trustee transfer between institutions, or a same-trustee transfer if both IRAs are at the same firm. There is no income limit for converting, even though direct Roth IRA contributions have income limits (IRS Topic No. 309). Since January 1, 2018, under the Tax Cuts and Jobs Act, a conversion cannot be undone (recharacterized) back to a traditional IRA.
Source: IRS, “Retirement plans FAQs regarding IRAs” (Rollovers and Roth conversions).
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