Part 7/10:
One of the most critical aspects of conversion is understanding the tax consequences. Since you pay taxes on the converted amount, it's important to be financially prepared—ideally without dipping into retirement savings or borrowing money to cover the tax bill.
The IRS requires reporting conversions using Form 8606 and will send form 1099-R indicating the amount transferred. You should also consider the five-year rule: funds converted to a Roth IRA cannot be withdrawn tax-free before five years unless you meet other conditions, or you’ll face a 10% early withdrawal penalty.