Paying for a Roth IRA conversion comes with a tax bill — here's how to handle it.

• Planning for the upfront tax bill is necessary if you're considering a year-end Roth individual retirement account conversion.
• After completing a Roth conversion, you will be required to pay regular income taxes on the converted amount, using your current-year taxable income as the basis for calculation.
• Experts suggest covering taxes with funds outside of the conversion.

Planning for an upfront tax bill is necessary if you're considering a year-end Roth individual retirement account conversion.

Converting funds from a pretax or nondeductible IRA to a Roth IRA can stimulate tax-free growth, making it a popular strategy among investors with substantial pre-tax balances, especially during lower-income years, according to experts.

It can be challenging to convert to a Roth IRA, said Abrin Berkemeyer, a senior financial advisor with Goodman Financial in Houston.

Completing a Roth conversion will result in owing regular income taxes on the converted balance, determined by your current-year taxable income.

CFP Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts, stated that he is managing the tax bracket. He is also a certified public accountant.

Guarino explained that for 2024, there will be a small increase from 10% to 12% or 22% to 24%, but a larger jump from 24% to 32%.

Guarino advised keeping within a tax bracket to comfortably afford the upfront bill.

Experts suggest that Roth conversion strategies are dependent on clients' long-term objectives, particularly in terms of estate planning.

How to pay for taxes on your Roth conversion

It is more advantageous to use other assets to cover upfront taxes instead of using a portion of the converted balance, according to Berkemeyer.

To maximize the benefits of the conversion, it is recommended to contribute more funds into the Roth account.

One of the best options to pay for taxes is cash from a savings account, according to Berkemeyer. Additionally, you may consider selling assets from a brokerage account as another option.

If you sell brokerage assets to pay Roth conversion taxes during a lower-income year, you may qualify for the 0% long-term capital gains bracket, provided you've held the investments for over one year, according to him.

In 2024, you may be eligible for a 0% capital gains tax rate if your taxable income is less than $47,025 as a single filer or $94,050 as a married couple filing jointly.

Since the Roth conversion increases your taxable income, you'll need to run a projection.