Roth conversions
I’ve been told over the years that if you do a full or partial Roth Conversion you should not pay the taxes with funds from the IRA, but instead use non-qualified money to pay the taxes. Do you agree with that or is it ok to pay the taxes from the IRA being converted?
Permalink Submitted by Alan - IRA critic on Fri, 2024-08-16 17:11
It’s always better to pay the taxes with other funds, otherwise the amount withheld will be lost to both the TIRA and the Roth IRA and the withheld amount will also be subject to the 10% penalty unless you are at least 59.5.
That does not mean you should never convert, but you probably should not unless you are fairly sure that the tax rate owed on the conversion and withheld amount will be lower than what you project in retirement.
You can also withhold from the distribution to pay taxes instead of paying estimates and roll over the amount withheld using other funds if you have them. In that case you are still essentially paying the taxes with other funds.