UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next
Author: Perseid Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Paying the taxes on a Roth Date: 2/17/1998 9:19 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Hey, TMFPixy --

I'm about to convert my regular IRA (held by DLJdirect) to a Roth. There's a spot on the conversion form you can check for:
(1) Withhold no Federal Income Tax.
(2) Withhold ______% of the conversion amount for payment of Federal Income Tax.
(3) Withhold $_______ for payment of Federal Income Taxes.

Now, from this I gather that I can use funds in the IRA to pay the taxes that are going to be required over the next four years for this conversion, right? This makes sense, because I'd like the IRA to pay for itself and it's done very well -- it can pay these taxes just from returns it's made in the market, not from principal I've invested, and I'll still be ahead.

Here are my two questions, please sir:
(a) Am I right that by using one of the above withholding options I can have the taxes paid out of the money in the IRA itself (and not have to somehow pony up four years of additional money to pay these taxes)?
(b) Is there an advantage to option 2 over 3 or vice-versa? In other words, is it better to say 28% (my bracket) in the percentage option or to figure out what 28% should be and use a dollar amount?

Thanks for your help and all the good guidance you offer us here!

-Perseid
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement