Thank you all for the replies. To clarify my understanding, on Form 8606 line 18, the amount should be $57,500 ($60,000 IRA distribution minus $2,500 taxes withheld, so $57,500 was "converted" to Roth ), and line 18 says "include this amount on 1040 line 4b" means just to "add" this amount to other amounts (i.e, the $2,500 tax withheld) on 4b. The amount on 1040 line 4b should be $60,000 ($57,500 to Roth and $2,500 for taxes). So it is ok that the amount on line 18 is different from the amount on 4b.
