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For example, if I convert $30,000 from my Traditional IRA to Roth IRA and that incurs $3,000 in taxes as a result, do I:

  • pay taxes on the amount that goes into the Roth IRA, meaning my Roth IRA balance goes up by $27000, or
  • does all $30000 go into the Roth IRA and I pay a separate tax bill of $3000?

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All $30000 goes into the Roth IRA and you pay a separate tax bill of $3000. Or more specifically, it it taxed just like if your your regular income went up by $30000 (assuming the entire conversion was taxable), just like if you earned $30000 more salary that year. And the amount that your tax goes up is just the amount that it would normally go up if your income went up by $30000. (I am not sure where you got $3000 from, but I am assuming that you did the full calculation of your taxes with and without the extra $30000 in income and the difference was $3000.)

If you were to try to pay the tax using money from the IRAs, that would involve a withdrawal which could lead to other tax consequences.

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