The traditional individual retirement account allows you to postpone paying taxes until you withdraw the money in retirement. A Roth IRA works in reverse: your contributions to the account are taxed, then withdrawn tax-free in retirement. When you convert a traditional IRA to a Roth, you must pay taxes on the amount converted at your current tax rate. Once you estimate how much you'll have to pay -- which you can do through a tax calculator -- you have several options when it comes to this payment.
Since the tax bite can be thousands of dollars, it may be easier on your budget to save a little bit at a time. Increased withholdings by your employer make this easy. Simply ask your employer to adjust your withholdings. You can either reduce the number of allowances or write in a specific additional amount to withhold. The latter method is more exact.
Cash from IRA
As you make the conversion, you can request some of the funds as a withdrawal. You will have to pay an additional 10 percent penalty on this amount, but it can be a convenient way to get the money that you need. Note that this will reduce the amount in your retirement savings, though.
Savings or Assets
Pay off your taxes with the money that you have in your savings account. If you have non-retirement investment accounts, you can sell some of those assets to pay for the tax as well. Or you could sell any physical item you own that's worth enough to cover the tax payment.
Spreading It Out
You don't have to convert all of your traditional IRA into a Roth at one time. If you're concerned about the tax burden, you can convert a little at a time over several years. This can make the tax payments more manageable.
A special opportunity in 2010 allowed those who converted a traditional IRA into a Roth to spread out the tax payments over two years. Congress did not renew this option as of 2011, however.