To Roth, or Not to Roth:
That is the Question

1. Should you consider converting to a Roth IRA?

You pay federal income taxes now on the conversion amount, but none on any future earnings. There are also no Minimum Required Distributions (MRDs) from a Roth IRA during the lifetime of the original owner. If you think your tax rate will be the same or higher than your current rate when you withdraw your money, it may make sense to consider converting to a Roth IRA now.

2. What's different in 2010?

Starting in 2010, more people can convert their Traditional IRAs to Roth IRAs, and for 2010 conversions only, spread the tax cost of the conversion over two years. Specifically, the new tax rules do the following:

• Removes income limitations on conversions to Roth IRAs
• Allows taxpayers to defer their tax liability on amounts converted in 2010, paying the amount equally over tax years 2011 and 2012

3. How is a Roth IRA different from a Traditional IRA?

With a Traditional IRA, contributions are made on a pre-tax (tax-deductible) basis. Any earnings in the Traditional IRA are tax-deferred as long as they remain in the account. Withdrawals are subject to ordinary income tax when withdrawn. After the owner reaches approximately age 70 ½, Minimum Required Distributions are required from Traditional IRAs.

With a Roth IRA, you contribute money that's already been taxed (that is, "after-tax" dollars). Any earnings in a Roth IRA grow tax-free as long as they stay in the account. Withdrawals of earnings from Roth IRAs are federal income tax free if a 5-year aging period has been met and the account owner is age 59 ½ or over, disabled or deceased. Roth IRAs are not subject to Minimum Required Distribution (MRD) rules during the lifetime of the original owner, so you can leave your assets in the Roth IRA where they have the potential to continue to grow.

For both types of IRAs, distributions before age 59 ½ may be subject to both ordinary income taxes and a 10% early withdrawal penalty.

4. What account types can you convert?

Traditional IRAs (including Rollover IRAs), SEP-IRAs, SAR-SEP IRAs, and SIMPLE IRAs are all eligible to be converted to a Roth IRA. Also, balances from previous employer-sponsored savings plans (401(k) or 403(b) plan) may be converted.