To Convert or Not to Convert - ROTH IRA CONVERSION

2010 - The Roth IRA conversion option allows qualifying taxpayers to electively convert some or all of their traditional IRA, SEP, SIMPLE, 401(k), 403(b), or 457(b) savings to Roth IRA . The taxpayer must include the taxable portion of the traditional savings in his or her taxable income in the year of conversion. But once the traditional assets are converted, all future growth within the Roth IRA accumulates on a tax-free basis (assuming the Roth IRA owner takes “qualified distributions”).

Since 1998, Roth IRA conversion option has historically been available only to households with $100,000 or less of Modified Adjusted Gross Income (MAGI). In other words, access to Roth IRA conversions has been limited to those taxpayers who are the least likely to be in a financial position to take advantage of it. But that’s all scheduled to change. Thanks to a little-publicized provision in the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005, the income restriction on Roth IRA conversions is set to be lifted as of January 1, 2010.