Get your taxes done using TurboTax

Assuming a partial conversion:

 

All your IRA distributions will be reported on your 1099-R.  The portion that satisfies the RMD is not eligible to be converted, but the tax form won't know what order the distributions occurred.  Suppose you withdraw $5000 and convert $20,000, and your RMD is $4000.  Your 1099-R will report a $25,000 withdrawal.  The first $4,000 is considered as applying to the RMD, leaving $21,000 eligible for the conversion.

 

So I don't think you have an actual problem, as long as the converted amount is equal or less than the amount eligible to be converted.  You might have a problem if the RMD is supposed to be calculated on the pre-conversion balance instead of the post-conversion balance, so just withdraw enough extra so that can happen.  As long as you complete the withdrawal before 12/31 (which means starting the withdrawal before Christmas to give the banks time to process the request) then I think you are fine.

 

Where the big problem occurs is if you convert the entire IRA balance to a Roth IRA.  In this case, you fix the problem by contacting the Roth custodian and requesting the removal of excess contributions.  Suppose you converted the entire balance of $100,000 but you were supposed to take an RMD of $4,000.  You will withdraw $4000 from the Roth as an "excess contribution" (this is a special procedure, not a regular withdrawal).  Then on your tax form, you would report a $100,000 distribution from the IRA, and a $4,000 RMD, leaving $96,000 eligible for conversion.  As long as the conversion amount reported by the Roth custodian is less than $96,000 (because you withdrew the excess amount), you are in the clear. 

 

I will correct this if @dmertz  has a better answer, but I believe this is what you need to do.