You convert $50,000 from a traditional IRA to a Roth at a 22% marginal rate. The tax bill is about $11,000. Your brokerage asks the obvious question: withhold it from the conversion, or pay it from your checking account? Most people pick withholding because it feels tidier, one transaction, nothing out of pocket. It is also the more expensive choice by roughly $42,000 over 20 years. Here is why.
Path A: pay the $11,000 from cash
The full $50,000 lands in the Roth and starts compounding tax-free. At 7% annual growth for 20 years, that $50,000 becomes about $193,500, and every dollar of the growth is yours. The $11,000 you paid from checking is gone, but it bought you a larger tax-free base, which is the entire point of converting.
Path B: withhold the $11,000 from the IRA
Only $39,000 reaches the Roth. At the same 7% for 20 years, it becomes about $151,000. You are $42,500 poorer than Path A, and that gap only widens with time. Worse, if you are under 59 and a half, the $11,000 withheld is not treated as part of the conversion at all. It is an early distribution, which means income tax plus a 10% early withdrawal penalty, another $1,100 gone. You paid a penalty for the privilege of shrinking your own Roth.
The spiral nobody models
There is a second cost that hides inside Path B. Say you decide to pull the tax money from the IRA as a separate withdrawal instead of withholding. To hand the IRS $11,000 from an IRA at a 22% marginal rate, you must withdraw about $14,100, because $3,100 of the withdrawal is itself taxed. You are paying tax on the money you withdrew to pay the tax. Financial planners call this the pay-tax-to-pay-tax spiral, and it is the quiet reason conversions funded entirely from retirement accounts so often disappoint. The dollars compound against you in both directions.
The honest exception
Here is the tension I will not paper over: some people have no outside cash. Every liquid dollar they own sits inside retirement accounts. For them, "pay from cash" is not advice, it is a taunt. The sources I trust most on this say the same thing: if the IRA is your only way to pay the tax, convert a smaller amount you can actually afford, or wait until you have the liquidity to do it right. A $25,000 conversion with the tax paid properly beats a $50,000 conversion that ate its own tail. What does not work is pretending the withholding was free. Run the two paths on your own numbers first:
Plan your Roth conversion ladder with tax costs
Frequently asked questions
Should you pay Roth conversion taxes from the IRA itself?
No, if you can avoid it. Outside cash keeps the full converted amount compounding tax-free. Withholding shrinks the Roth and can trigger a 10% penalty under 59 and a half.
What happens if you withhold taxes before age 59 and a half?
The withheld portion counts as an early distribution, subject to the 10% penalty on top of income tax. Only what lands in the Roth counts as converted.
Is it ever OK to pay conversion taxes from retirement funds?
If you truly have no outside cash, convert a smaller amount or wait until you have liquidity. Withholding is defensible only when the conversion still wins after the smaller Roth balance and any penalty.
How much should you convert per year?
Most early retirees fill up to the top of a target bracket each year, sized so the tax is payable from taxable cash, across the low-income years before RMDs begin at 73.
Do Roth conversions affect Medicare premiums?
Yes. IRMAA surcharges use MAGI from two years prior; for 2026 they start at $109,000 single and $218,000 joint. One big conversion can trip them.
Sources: IRS rules on Roth conversions and early distributions (10% additional tax under 59 1/2); Medicare IRMAA thresholds for 2026; conversion mechanics per standard brokerage and advisory guidance. Growth illustration at 7% is hypothetical. Verified October 2026. This is educational content, not tax advice.