Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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.
Price the conversion before you make it
A conversion cannot be undone once it is done, so it is worth having someone model the bracket it fills, the knock-on effects on your other income and how long the money has to compound before you settle on an amount.
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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.
Related
Paying from outside funds means knowing in advance what has to be set aside. The Roth conversion bracket calculator takes your income before any conversion and returns the federal tax on filling your bracket — the sum that has to come from somewhere other than the IRA if the whole conversion is to reach the Roth.