You got it right. The broker doesn't know you didn't deduct the deposit, so you'll indicate that on your return and only have tax on the $500.

Note - the above is correct absent any other IRA funds. But, as Dilip noted, I should has clarified, if you had any prior year IRA deposits which were pre-tax, this conversion would need to take that into account. For example, you had deducted last year's deposit, also $5500, and with rates so low, let's skip the interest. Now, with $11000 in the account, when you convert any amount to Roth, since 5500/11000 was pretax, 1/2 the conversion avoids tax, and the remaining half is taxed. Important to note, all traditional IRA money is included in this calculation. You can't open separate accounts and treat that new deposit on its own.

You got it right. The broker doesn't know you didn't deduct the deposit, so you'll indicate that on your return and only have tax on the $500.

Note - the above is correct absent any other IRA funds. But, as Dilip noted, I should have clarified, if you had any prior year IRA deposits which were pre-tax, this conversion would need to take that into account. For example, you had deducted last year's deposit, also $5500, and with rates so low, let's skip the interest. Now, with $11000 in the account, when you convert any amount to Roth, since 5500/11000 was pretax, 1/2 the conversion avoids tax, and the remaining half is taxed. Important to note, all traditional IRA money is included in this calculation. You can't open separate accounts and treat that new deposit on its own.

You got it right. The broker doesn't know you didn't deduct the deposit, so you'll indicate that on your return and only have tax on the $500.

You got it right. The broker doesn't know you didn't deduct the deposit, so you'll indicate that on your return and only have tax on the $500.

Note - the above is correct absent any other IRA funds. But, as Dilip noted, I should has clarified, if you had any prior year IRA deposits which were pre-tax, this conversion would need to take that into account. For example, you had deducted last year's deposit, also $5500, and with rates so low, let's skip the interest. Now, with $11000 in the account, when you convert any amount to Roth, since 5500/11000 was pretax, 1/2 the conversion avoids tax, and the remaining half is taxed. Important to note, all traditional IRA money is included in this calculation. You can't open separate accounts and treat that new deposit on its own.