Craig Wear, CFP®Craig Wear, CFP® | Expert in Roth Conversions & Tax-Efficient Retirement Strategies for IRA Millionaires

The Tax Implications of a Roth IRA

22 Jun 2024 · 0 min

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Craig Wear, CFP® explains that converting pre-tax retirement funds to a Roth IRA is a taxable event: you pay tax up-front on the converted amount so future growth and withdrawals are tax-free. He notes a practical detail: if cash to pay the taxes is not already held inside the account (e.g., money market/cash), you must liquidate other assets in the account to raise the cash to pay the taxes.

If you're going to pay taxes from within the account, then you have to. If the cash to pay the taxes is not already sitting in a money market or cash account, then you have to liquidate something in order to pay the taxes to get it done. So just kind of high level. The tax implications of doing a Roth IRA is that you've again, you've chosen to take money that was pre tax, pay tax on it and never pay tax on the resulting balance after that. So it is a taxable event.