Let’s suppose you want to convert $10,000. If you withdrew $10,000 and had the custodian withhold 20% for taxes, then you would end up only converting $8000, and the other $2000 counts as a regular distribution. If you are under age 59 1/2, that’s subject to an additional 10% penalty tax.
If you can afford to take the $2000 in taxes from other funds that you have, you would convert the entire $10,000 without the first trustee withholding anything. You can make a estimated tax payment on your own using the IRS website www.irs.gov/payments.
Depending on your tax bracket, the conversion may cost 12%, 22%, or 24% in federal taxes (for most people). You can also expect to pay between 3% and 10% in state taxes, depending on which state you live in and what your income level is.
Also note that in some circumstances, the conversion can have repercussions in other areas of your tax life. For example, depending on your age and life situation, raising your income with a Roth conversion might disqualify you from claiming the American opportunity credit for college tuition that you pay for a dependent child, or it may reduce your eligibility for the child tax credit, or it may increase the taxability of your Social Security.
