Updated July 28, 2026. Quick answer: Almost always pay from outside funds. Money withheld from the conversion never reaches the Roth, so it stops compounding tax-free — and if you are under 59½, that withheld portion is generally treated as a distribution subject to the 10% penalty.
Two separate costs
The compounding cost. Convert $100,000 and withhold $24,000 for tax and only $76,000 lands in the Roth. The $24,000 was going to be paid either way — the question is whether it comes from a place where it would have grown tax-free.
The penalty cost, under 59½. The withheld portion did not get converted; it was distributed. That generally makes it subject to the 10% early-withdrawal penalty on top of the income tax.
Which produces the rule that follows from it: if you cannot pay the tax from outside funds, that is usually a signal to convert less, not to withhold from the conversion. Converting a smaller amount you can fund properly beats converting a large amount badly.
Where the outside money should come from
Cash is cleanest. Selling from a taxable account can work but realises capital gain, which stacks on top of the conversion income in the same year — price both together rather than separately.
Sources
IRC §408A (Roth IRAs); IRC §408A(d)(3) (conversions); IRC §1411 (net investment income tax); IRC §86 (taxation of Social Security benefits); IRC §6654 (estimated tax); Tax Cuts and Jobs Act (2017) §13611 (repeal of conversion recharacterisation). Cross-checked July 2026 against professional analyses. Indexed thresholds are described rather than asserted, because they change annually.
This states what the cited authority says. It is not tax advice, and a conversion interacts with the rest of your return in ways one page cannot see.