...only if it makes sense. In 2010, for the first time, there will be no income limits on who can convert their traditional IRA to a Roth IRA, and you'll even be allowed to spread out the tax bill through 2012. That's big because you'll owe immediate tax on the full amount of the IRA, assuming all contributions were deductible. Figuring out if a conversion makes sense is a complicated task. You can get a good idea by working with the calculator at moneychimp.com. In general, though, you are a prime candidate to convert if 1) your income has taken a temporary dip, 2) your IRA assets are in the depressed stock market and likely to bounce back, 3) you expect your tax rate to be about the same or higher in retirement (a lot of experts predict tax rates are going up, even for retirees), and 4) you can pay the conversion tax with funds outside of your IRA. The beauty of a Roth is that once you pay the tax on your contributions the balance grows tax-free for life and there is no mandatory distribution age. You can pass the Roth onto heirs. But tax deferral in a traditional IRA usually remains a more potent savings weapon if you do not have the outside resources to pay the tax due upon conversion or expect your tax rate to fall in retirement.
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