Short video/transcript excerpt where Craig Wear, CFP® explains considerations when funding taxes for large traditional IRA-to-Roth conversions; he compares paying taxes from capital gains (often taxed at a lower rate) versus taking funds from the IRA (taxed at ordinary income rates), and notes many clients only have IRAs but conversions can still work.
If you were to do a large IRA conversion to a Roth and you needed $100,000 to pay the taxes, would you rather pay the 100,000 because you sold something and have to pay a 20% capital gain, or would you rather take it from your IRA and have to pay at ordinary income tax rates? So between the two, I'm going to choose paying out of the capital gains tax to make it work. Now, in a in a perfect world, that's the scenario. We have a lot of clients that the only real bucket they have is an ira, and it's a big ira, but they don't have any other buckets to pull money out of. But never fear. Yeah, the Roth conversion strategy will still work out just fine with it.
