To Convert or Not To Convert?

That is a question you may be contemplating soon due to a change in the tax law. Starting in 2010, anyone with a Traditional IRA will be able to convert it to a Roth IRA, regardless of income or filing status. 
 
One difference between a Traditional IRA and a Roth IRA is the timing of the taxation of the account assets. With a Traditional IRA, your contributions may qualify for a tax deduction, but your withdrawals will be taxed as ordinary income. In contrast, while your contributions to a Roth IRA aren’t tax deductible, account earnings aren’t taxed and earnings can be withdrawn tax free once you are at least age 59½ and five years have passed since your first Roth contribution. (Roth contributions are always distributed tax free.)
 
Some people can benefit over the long term by "converting" (transferring) their Traditional IRA assets to a Roth IRA. The conversion is a taxable event, but all future Roth IRA earnings will be tax free if all requirements are met.
 
To convert a Traditional IRA to a Roth IRA, a taxpayer’s modified adjusted gross income for the year generally can’t exceed $100,000.
 
The income limitations on who can convert a Traditional IRA to a Roth IRA will no longer apply, starting in 2010. No matter how high your income, you’ll be able to take advantage of a Roth IRA’s tax benefits. And, if you convert in 2010, you can spread the tax bill out over the next two years (2011 and 2012).
 
High income earners can take steps now to make the most of the new rule. Since there are no income restrictions on nondeductible contributions to a Traditional IRA, consider contributing now to a Traditional IRA. You can contribute up to $5,000 in 2009 (even more if you are age 50 or older). Then convert to a Roth IRA after 2009 and remember, after conversion, all earnings on the Roth IRA balance will be tax free if you meet the distribution requirements.