When the model runs a Roth conversion, the full gross amount moves from your Tax-deferred account into a Tax-free (Roth) account. The conversion's income tax is calculated separately at your marginal rate for that year and is paid from your other accounts - it is not withheld from the converted amount.

The simulation pulls from your accounts in this priority order:

1. Cash above your reserve target first - surplus cash beyond what you've configured as your emergency reserve.
2. Taxable investment (brokerage) next - sells from your taxable account.
3. Tax-deferred itself if Cash and Taxable can't cover the bill. This is counterproductive (the extra withdrawal triggers more tax) and usually signals that the conversion is too aggressive given your liquid balances.
4. Cash below your reserve target as a last resort, dipping into the emergency cushion.

Paying the tax from outside the conversion is the most efficient approach: it keeps every converted dollar compounding tax-free in the Roth, which is what makes a conversion worthwhile in the first place. This matches the strategy most advisors recommend and most published Roth conversion analyses assume.

If your Cash and Taxable accounts can't cover the tax, the simulation falls back to paying it out of the Tax-deferred account itself, which dampens the benefit (some of the converted dollars effectively go to the IRS instead of compounding in Roth) and in many cases makes conversions a poor choice. A safeguard (the "tax-fundability cap") shrinks any conversion that the combined Cash + Taxable + Tax-deferred pool can't actually fund, preventing impossible scenarios. The Tax-deferred floor setting on the Roth Strategy page lets you protect a minimum Tax-deferred balance from being tapped for this purpose.

Conversion taxes are tracked separately from your annual income taxes, so they don't double-count against your withdrawal pressure or recurring expenses for the year.