Hey, a fellow Idahoan. Hi there :-)
Without additional information about your goals, risk tolerance, other assets, age, and probably a million other things, I can't tell you what you should do.
I was in your shoes, however, and in my case what I did was roll the earnings and deductible contributions into my 401k, and then roll the nondeductible contributions to my Roth IRA at zero tax. I would rather avoid paying 30% income tax ever, so my plan involves retiring early and withdrawing from my pre-tax funds at a very low annual rate (maybe $35K annually), which will generate a very low tax bill, if any.
Regarding your second question, you will need to fill out Form 8606. It's a little tricky, but if you know the nomenclature and how the taxes should work, you can muscle your way through it. At the end of the day you'll fill out part II for the actual conversion, and that will create a taxable amount that will end up on line 15b of your 1040.
Yes, it could trigger an underpayment penalty. One way that I successfully avoided an underpayment penalty in a previous year was making an estimated tax payment by 1/15, which was included in my total taxes paid and, in my particular case, got me within the $1,000 safe harbor amount. So if you want to do the conversion, the underpayment penalty shouldn't really be an issue as long as you're willing to do a pro-forma run of your taxes around the new year and send in a check to get you within the safe harbor limits.
Assuming your an Idaho resident, you will also pay ~8% to Governor Otter on the converted taxable amount, so you should figure that into your plans. Last time I looked you were safe from an underpayment penalty to the state if you had paid at least 80% of the taxes owed, so there is a wider safe harbor there.
I guess I wonder why you are so eager to pay 30% in taxes now.
