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Yes, either method will work so you could choose which one. In many cases, these transactions will occur very late in the year, and the rollover of the withheld amount must be done within 60 days, therefore is often done in January of the following year.
Yes, Method 2 is simpler since it avoids having two conversion contribution dates with the conversion 5 year holding period possibly starting in different years even though the taxable income from the distribution is reported in the earlier year.
Another option would be to do the withholding distribution first, and then the conversion. If this is an RMD year and the RMD has not been completed, it must be prior to doing a conversion. In some cases the withholding distribution will be large enough to satisfy the RMD itself.