Tax-free retirement just got a little easier - ROTH conversions

Rules on Income Limts.
The income-eligibility limit on Roth conversions disappear on January 1st 2010 for high earners. The income level of $100,000 will become nonexistent. This is a prime opportunity to convert money into the tax-free Roths for high-earners. Income eligibility limits on contributions remain in effect.

You don’t have to wait until 2010.
For wager earners that make less than $100,000 adjusted gross income, you can actually convert now. With the market being down this might be an excellent time to convert since you will be paying less income tax on the lower account value. By waiting until 2010, you may be having to pay a higher tax bill with market appreciation. If you convert too soon, you can always convert back to a traditional IRA in what is known as a recharacterization by October 15th of the year you convert.

2010 is the year but not the year the tax is due.
While 2010 is the actual year that you will be able to convert, the income to be claimed can be deferred until 2011 and 2012. The IRS has granted you the option to claim 50% of the conversion amount as income in 2011 and the remaining 50% in 2012. Keep in mind that this is only in 2010. After 2010 the taxes will all be paid in full the following year going forward.

If you elect to pay the tax over the two year period, keep in mind that the tax rate is determined for that year only. Example, in 2011 you will pay the tax based on your tax bracket for that year. If your income were to somehow sky rocket in 2012, then you will be paying more in taxes that year for the conversion.

Convert Traditional IRAs and Old 401(k)s.
The 2010 conversion is not limited to just your traditional IRA. If you have any old 401(k)s or any other retirement plans from a previous employer, those will also be allowed to convert as well. Might be a good idea to convert them all.