How to Pay Taxes on Roth IRA Conversions: Essential Guide and Tips for High Net Worth Investors
- Adam Smith, CFP®
- 11 hours ago
- 10 min read
Understanding how to pay taxes on Roth IRA conversion isn't just about writing a check to the IRS—it's about choosing the payment method that preserves the most value in your retirement accounts.
You've done the analysis. You know a Roth conversion makes sense for your situation. But here's what many affluent investors miss: how you pay the tax bill can be just as important as whether you convert at all.
Consider this: A poorly timed conversion payment strategy can trigger Medicare IRMAA surcharges of $2,100 to $12,700 annually per person—a stealth tax that arrives two years after your conversion and catches even sophisticated investors off guard.
At Covenant Wealth Advisors, we've seen clients execute flawless conversion strategies only to undermine them with payment timing mistakes. Withholding taxes from the conversion itself? That reduces the amount growing tax-free. Skipping estimated payments? That triggers underpayment penalties. Making a large Q4 conversion without adjusting withholding? That can mean scrambling for cash in April.
This guide walks you through the three primary methods for paying Roth conversion taxes, explains how to avoid underpayment penalties, and reveals the lesser-known factors that affluent investors must consider—including Medicare premium impacts and Social Security taxation.
Key Takeaways
● Three primary payment methods exist: federal withholding from the conversion, quarterly estimated payments, or increased W-2/pension withholding
● Paying from outside funds is generally superior because it maximizes the amount converted to tax-free status
● The safe harbor rules protect you from penalties if you pay 100% of last year's tax (110% if AGI exceeded $150,000)
● December withholding is treated as paid throughout the year by the IRS—a powerful planning tool
● IRMAA surcharges hit two years after conversion—model Medicare impacts before executing large conversions
● The pro-rata rule affects anyone with existing traditional IRA balances and must be calculated on Form 8606
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How Do You Pay Taxes on a Roth IRA Conversion?
You can pay Roth conversion taxes through three primary methods: (1) federal tax withholding from the conversion amount, (2) quarterly estimated tax payments, or (3) increasing withholding from W-2 wages or pension income. Most financial advisors recommend paying from non-retirement funds to maximize the amount converted and preserve tax-free growth potential.
Method 1: Federal Withholding from the Conversion
When you request a Roth conversion, your custodian will ask if you want taxes withheld. You can elect 10%, 20%, or any percentage up to 100%.
Why most advisors discourage this approach:
● Every dollar withheld is a dollar that doesn't go into your Roth IRA
● You lose the tax-free compounding on that amount permanently
● If you're under 59½, the withheld amount may be subject to the 10% early withdrawal penalty (since it's technically a distribution that wasn't converted)
Example: You convert $100,000 and elect 22% withholding. Only $78,000 goes into your Roth IRA. The $22,000 withheld never enjoys tax-free growth. Over 20 years at 7% growth, that's approximately $85,000 in lost tax-free accumulation.
Method 2: Quarterly Estimated Tax Payments
The IRS expects taxes to be paid as income is earned. If your conversion creates a significant tax liability, you may need to make estimated payments to avoid underpayment penalties.
Estimated payment deadlines for 2026:
● Q1: April 15, 2026
● Q2: June 15, 2026
● Q3: September 15, 2026
● Q4: January 15, 2027
The challenge: If you complete a conversion late in the year (October-December), the income technically occurred in that quarter, but you may not have made estimated payments earlier in the year. This creates potential penalty exposure.
Method 3: Increased W-2 or Pension Withholding
Here's where sophisticated planning creates real value.
"There's a little-known IRS provision that makes December conversions strategically valuable," explains Matt Brennan, CFP® at Covenant Wealth Advisors. "Federal withholding from W-2 income or pensions is treated as paid evenly throughout the year—even if you increase it in December. This can help clients avoid underpayment penalties without making quarterly estimates for a conversion they just completed."
How it works: If you complete a $150,000 Roth conversion in November, you can increase your December pension or W-2 withholding to cover the additional tax. The IRS treats this withholding as if it were paid ratably throughout the year, eliminating any underpayment penalty exposure. This is particularly powerful for retirees receiving pension income who can adjust Form W-4P withholding.
What Are the 2025 Tax Brackets for Roth Conversion Planning?
For 2025, a married couple filing jointly can convert up to $96,950 in taxable income at the 12% rate, up to $206,700 at 22%, and up to $394,600 at 24%. Understanding these thresholds is essential for "bracket filling"—converting just enough to reach the top of a favorable bracket without spilling into the next tier.
2025 Federal Income Tax Brackets (Married Filing Jointly)
Tax Rate | Taxable Income Range | Cumulative Tax at Top of Bracket |
10% | $0 – $23,850 | $2,385 |
12% | $23,851 – $96,950 | $11,157 |
22% | $96,951 – $206,700 | $35,302 |
24% | $206,701 – $394,600 | $80,398 |
32% | $394,601 – $501,050 | $114,462 |
35% | $501,051 – $751,600 | $202,154 |
37% | Over $751,600 | — |
Source: IRS Revenue Procedure 2024-40
Bracket-filling strategy: If your other taxable income (wages, pensions, Social Security, investment income) totals $150,000, you could convert an additional $56,700 and remain entirely within the 22% bracket ($206,700 - $150,000 = $56,700).
How Do You Avoid Underpayment Penalties on Roth Conversion Taxes?
The IRS safe harbor rules protect you from underpayment penalties if you pay at least 90% of your current year tax liability OR 100% of your prior year tax (110% if your prior year AGI exceeded $150,000).
Meeting either threshold—through withholding, estimated payments, or both—eliminates penalty risk regardless of how large your conversion.
Understanding the Safe Harbor Rules
The IRS doesn't expect you to predict your exact tax liability. Instead, they provide "safe harbors"—payment thresholds that guarantee no penalty:
Safe Harbor Option 1: Pay at least 90% of your current year tax liability through withholding and estimated payments combined.
Safe Harbor Option 2: Pay at least 100% of your prior year tax liability (or 110% if your prior year AGI exceeded $150,000).
Why Option 2 is often preferable for conversion planning: If your 2024 tax was $45,000 and your AGI exceeded $150,000, you need to pay $49,500 (110% × $45,000) through 2025 withholding and estimates—regardless of how large your 2025 conversion is. This creates predictability.
The Form 2210 Annualized Income Method
If you complete a large conversion late in the year and didn't make quarterly payments, you may still avoid penalties using Form 2210's annualized income installment method. This allows you to demonstrate that your income wasn't earned evenly throughout the year, so earlier quarterly payments weren't required.
How Does the Pro-Rata Rule Affect Conversion Taxes?
The pro-rata rule requires that any Roth conversion includes a proportional mix of pre-tax and after-tax dollars based on the aggregate balance across ALL your traditional, SEP, and SIMPLE IRAs.
You cannot selectively convert only after-tax contributions—the IRS treats all your traditional IRAs as one account for this calculation, reported on Form 8606.
Why This Matters for Backdoor Roth Users
If you have $500,000 in a traditional IRA from old 401(k) rollovers and you make a $7,000 non-deductible contribution hoping to do a "clean" backdoor Roth conversion, the math doesn't work in your favor.
Calculation: Total traditional IRA balance = $507,000. Non-deductible basis = $7,000. Taxable percentage = $500,000 ÷ $507,000 = 98.6%.
If you convert the $7,000, approximately $6,902 is taxable (98.6% × $7,000), defeating the purpose of the backdoor strategy.
The Solo 401(k) Workaround
If you have self-employment income (even part-time consulting), you may be able to roll your traditional IRA balances into a Solo 401(k). Employer plans are NOT included in the pro-rata calculation, effectively "clearing the decks" for clean backdoor Roth conversions.
How Do Roth Conversions Affect Medicare Premiums?
Roth conversion income increases your Modified Adjusted Gross Income (MAGI), which determines Medicare Part B and Part D premiums through IRMAA—the Income-Related Monthly Adjustment Amount.
Because IRMAA uses a two-year lookback, a 2025 conversion affects your 2027 premiums. Surcharges range from $74 to $443.90 per month for Part B alone.
2025 IRMAA Thresholds and Surcharges
MAGI (Single) | MAGI (MFJ) | Monthly Part B Surcharge | Annual Part B Impact |
≤ $106,000 | ≤ $212,000 | $0 | $0 |
$106,001–$133,000 | $212,001–$266,000 | $74.00 | $888 |
$133,001–$167,000 | $266,001–$334,000 | $185.00 | $2,220 |
$167,001–$200,000 | $334,001–$400,000 | $295.90 | $3,551 |
$200,001–$500,000 | $400,001–$750,000 | $406.90 | $4,883 |
> $500,000 | > $750,000 | $443.90 | $5,327 |
Critical planning insight: A married couple converting $250,000 could push their MAGI from $200,000 to $450,000, triggering the $406.90 monthly surcharge tier. That's $9,766 in additional Medicare premiums for both spouses ($4,883 × 2)—in addition to the conversion taxes themselves.
"Many clients are surprised when their Medicare premiums spike two years after a large Roth conversion," cautions Scott Hurt, CFP®, CPA. "A $250,000 conversion in 2025 could add $4,400 or more to your 2027 Medicare costs—money that comes out of your Social Security check automatically. We model IRMAA impacts for every conversion recommendation."
Medicare premiums increase in steep tiers as your income rises, rather than gradually. Even a small amount of additional income, such as a Roth conversion or capital gain, can push you into the next bracket and trigger a significantly higher Medicare cost.
How Do Roth Conversions Affect Social Security Taxes?
Roth conversion income increases your "provisional income"—the calculation determining how much of your Social Security benefits are taxable. For married couples filing jointly, provisional income above $44,000 causes up to 85% of Social Security benefits to be taxed. This creates a "tax torpedo" effect where each additional dollar of conversion can generate $1.85 in taxable income.
The Tax Torpedo Effect
Provisional income = Adjusted Gross Income + Tax-exempt interest + 50% of Social Security benefits
For a married couple with $30,000 in Social Security benefits:
● Below $32,000 provisional income: $0 of Social Security taxed
● $32,000–$44,000: Up to 50% taxed
● Above $44,000: Up to 85% taxed
The hidden cost: If you're in the phase-in range, each $1 of Roth conversion income can cause $0.85 of Social Security to become taxable—creating an effective marginal rate far higher than your stated bracket.
Source: SSA.gov – Taxation of Benefits
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TAX PLANNING FOR RETIREMENT - identify tax reduction strategies including Roth conversions, RMD management, charitable giving and more...
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Frequently Asked Questions
How do you pay for Roth IRA conversion taxes?
You can pay Roth conversion taxes through federal withholding from the conversion amount, quarterly estimated tax payments (Form 1040-ES), or by increasing W-2 or pension withholding. Most advisors recommend paying from non-retirement funds to maximize the amount that converts to tax-free status and preserve long-term compounding benefits.
Do you have to pay taxes immediately on a Roth conversion?
No, taxes aren't due at the moment of conversion. The converted amount is added to your taxable income for that calendar year, and taxes are due by April 15 of the following year (or your extended filing deadline). However, you may need to make estimated payments throughout the year to avoid underpayment penalties.
Do I need to report Roth IRA conversion on taxes?
Yes. Roth conversions are reported on IRS Form 8606 (Nondeductible IRAs) and Form 1040. Your custodian will send you Form 1099-R showing the distribution. The taxable portion of the conversion appears on Form 1040, Line 4b. Accurate reporting is essential, especially if you have basis from non-deductible contributions.
Should you withhold taxes when you do a Roth conversion?
Generally, no. Withholding reduces the amount that converts to your Roth IRA, permanently reducing tax-free growth potential. Additionally, if you're under 59½, the withheld amount may trigger a 10% early withdrawal penalty. Instead, consider paying taxes from non-retirement accounts or using the December withholding strategy through W-2 or pension income.
Conclusion
Paying taxes on a Roth conversion requires more than just having cash available in April. The payment method you choose—and when you execute it—directly impacts how much wealth ultimately grows tax-free in your Roth IRA.
For high-net-worth investors, the stakes are higher. Large conversions can trigger IRMAA surcharges, accelerate Social Security taxation, and create complex pro-rata calculations that require careful Form 8606 reporting.
The most successful conversion strategies integrate tax payment planning from the beginning—not as an afterthought.
Would you like our team to just do your retirement planning for you? Contact us today for a complimentary retirement roadmap experience.
About the author:
Senior Financial Advisor
Adam is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 17 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.