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?

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.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.