Plenty of us have done exactly this. It's totally fine and probably even preferable to put the third string hole above the cover. Banjo player/ machinist Jerry Keys in East TN can punch a hole similar to what would have been on an original five string tailpiece into your four string Presto.

I also just went barely under the cover. You just make a dimple in the metal with the punch and then you can drill it out. With the drill press running, I then put it in an angle and the drill bit put a slope onto the two sides of the hole in the opposite directions. I thought it was best not to have a sharp edge for the string to pass over. I reckon I could have used a small file for the same effect. Mine was a 1926 Presto tenor.

It's your tailpiece - you should do whatever you feel.
But here's my late 20s Vegaphone Pro' conversion.
There are 5 lugs - so it works like this, and for years I had it strung with the third string over the top. That seemed fine too.
I'm not sure why it needs a hole punching? This is not a snarky question - I'm genuinely interested and wondering what I'm missing.

I suppose it's "just because it's always been that way"? Or, "because it makes good sense"! Not sure but I'm betting it has to do with creating a stable down pressure for each string or some logical engineering reason. Food for thought.

My late 20’ tb3 was going to be converted to 5str when I bought it as a tenor the presto tailpiece was already been holed, I didn’t mind about it and used for years as a four string tailpiece, then a bluegrass player offred me quite a lot of money for that tailpiece so I sold it to him and got a period kershner tailpiece for half the money…

I'll reiterate what Karl Smakula wrote. Send the tailpiece to Jerry Keys, and have him punch the hole in it. The hole will be the correct size and shape, and it will be in the correct location.

I like that my TB-3 conversion has the unpunched tailpiece. I run the 3rd string under the tailpiece. Little trickier to change string, but prefer the original state. I guess that contradicts 5 string neck replacement.

I have a 1929 TB 4 with a Presto. Jerry Keys work is pretty much perfection, but it simply doesn't bother. me I run the 4th string and 3rd string through the same hole. I do the same on an original tenor Kerschner tailpiece that I have on a 1926 Granada. (Ralph Stanley did the same on his RB 5 Deluxe.)

Although I have nothing against punched tenor Prestos.

There must be a reason Grover made a 5 string version, or?

Mine has been CNC routed and works great. 

I am glad to get positive info! I can move forward and will find Jerry Keys. I could drill it but am doing my best to keep it clean. Thanks, as always.

I sent it to Jerry Keys! Can hardly tell. He offsets these very slightly so they can be told from original 5's. Great work

You can put the 3rd string totally under the tail piece. Works fine no alterations to the tail piece. Just hook on the middle tang string under and up through space in front of tail piece. Heard about this years ago and works fine.