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Rollovers to a Roth IRA of distributions that are not made from a designated Roth account. If an eligible rollover distribution from an eligible employer plan is rolled over to a Roth IRA and the distribution is not made from a designated Roth account, then the amount that would be includible in gross income were it not part of a qualified rollover contribution is included in the distributee’s gross income for the year of the distribution. For this purpose, the amount included in gross income is equal to the amount rolled over, reduced by the amount of any after-tax contributions that are included in the amount rolled over, in the same manner as if the distribution had been rolled over to a non-Roth IRA that was the participant’s only non-Roth IRA and that non-Roth IRA had then been immediately converted to a Roth IRA. Thus, the special rules relating to net unrealized appreciation at § 402(e)(4) and certain optional methods for calculating tax available to participants born on or before January 1, 1936 are not applicable.

https://www.irs.gov/irb/2009-39_IRB#NOT-2009-75