How to pay for a ROTH IRA Converstion
There are a lot of ways to pay for a ROTH IRA conversion.
For starters, a ROTH IRA conversion tax can be paid over the next two years tax returns. So if a person converts a traditional IRA in 2014, they can pay the tax 50% in 2014 and 50% in 2015. This fact can ease the burden of paying the tax.
When the tax is due, the money needed can be obtained by:
1) Reducing the amount of IRA contributions being made - A person should always take advantage of an employers match if it is available. However, once this is met, remaining contributions can be reallocated to pay of the government and create a tax free asset.
2) Money from savings - Since the tax lien the government has on a traditional IRA isn't really the account owners, using money from savings will not affect the networth of the individual when used to pay off the government.
3) A Home Equity Loan to Pay ROTH IRA Taxes - Using the same thought process, a person is in debt to the IRS using a traditional IRA. Reallocating that debt and putting a lien on a piece of property does not affect the total debt of an individual.
Five years after converting an IRA to a ROTH, the principle amount involved in the conversion is 100% available to an individual for any reason. The money used to pay the taxes can be left in the ROTH or they can be removed to replenish a saving account or pay of a loan used to pay the tax.