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Author: Perseid Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 78701  
Subject: Paying the taxes on a Roth Date: 2/17/1998 9:19 AM
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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!

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