Craig Wear, CFP® explains options for paying taxes when converting traditional IRAs to Roth IRAs. He notes many people worry they must pay conversion taxes from within the IRA, but most pay using cash or non-IRA investments—allowing a larger conversion amount and more future tax-free growth.
What are the options for paying for the taxes? A lot of people think that if they don't have any money outside of their ira, they cannot do conversions because they're concerned about paying the taxes from within the ira. And I get that. That is a reasonable concern. But most people use cash or other investments that are outside of their IRA accounts. The benefit of this, obviously, is that it maximizes the amount that you're actually able to get converted to the Roth ira, which gives you more tax free growth.
