From here, under "Treatment of Distributions".
In particular, let's assume I have some funds in Traditional and Roth 401(k) and IRAs.
Now, let's take a year when I make no income and I decide to convert some of the traditional 401(k)/IRA to Roth IRA that year such that the "income" generated from this conversion requires me to pay no (or negligible) taxes for that year.
Can I still withdraw the principal amount from the 401(k) tax-free (before 59.5 years) and any sum of money tax-free after 59.5 years?
Scenario 1: If I were to convert $1000 from traditional to a roth account, and as a result not have to pay any taxes that year. Then is the $1000 still considered "taxable portion of conversion"?
Answer (in comments below): Yes. While you may not pay taxes because of the income threshold (check that, you may need to combine your worldwide income just to calculate the tax on the US-sourced portion), it is still classified as taxable portion. The word is taxable, not taxed.
Follow-up question: Is the income from another part of the world is considered taxable in the US - particularly from India? eg. If I was earned $10,000 residing in India and I convert $1000 from traditional to a roth account would I be paying any taxes to the US on the $1000? Would I be paying any taxes to India on this $1000? Is this $1000 considered "taxable portion of the conversion"?
Scenario 2: If I transfer $9,000, and due to standard deductions I only pay taxes on $4000 (at say 10%). So, in this case, is $5000 considered "Taxable portion of a conversion"? (Assumption: No other worldwide income in this case).