Craig Wear explains why paying Roth conversion taxes from your IRA instead of other sources can backfire. If you withhold the tax from the IRA, fewer dollars actually convert and grow tax-free, costing you decades of compound growth. Pay the tax from outside the IRA instead.
Even carefully optimized Roth strategies can lose their edge, not in what you convert, but in what happens right after the conversion. Because after the conversion, the tax still needs to get paid. And this is where many people quietly lose long-term tax savings. Often, the taxes get withheld automatically during the conversion, which means the amount that actually lands inside the Roth, well, it's smaller than you intended. That might not feel like a big deal, but that reduction doesn't just shrink your conversion. It shrinks every future year of compounding. And because Roth growth is totally tax-free, every dollar that never makes it into that account misses out on decades of untaxed growth. So before your next conversion, ask yourself, are you paying the tax on your Roth conversions from the most strategic account or simply the most convenient one. If you withhold the tax from the IRA itself, you reduce long-term tax advantage of the entire strategy. So whenever possible, model the long-term difference between paying the tax from taxable assets versus shrinking the conversion itself.
