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As we near the end of 2010, countless individuals have already completed Roth IRA conversions, and lots of others are questioning if a Roth IRA conversion in 2010 is the best possible move for them.

Why are Roth IRAs in the news so much this year? Previously, Roth IRA conversions were restricted to people who earned under a certain income limit ($100,000). A change in the rules, effective as of January 2010, removes the income restriction which means much more individuals are allowed to to convert from normal IRAs to Roth IRAs.

Part of this new rule is the ability to pay the taxes from any conversions done in 2010 over two years. Instead of having to pay the taxes from the conversion all on one tax return, the IRS is permitting you to pay out half in 2011 and then half in 2012.

Even though the new policy may appear too good to pass up, you ought to take a look at the situation very carefully before jumping right into a Roth conversion in 2010. Just because you could convert to a Roth does not imply you should do a conversion, at least not right away.

Before you decide on whether to convert or not, here are some basics concerning traditional and Roth IRAs you ought to be well aware of:

Traditional IRAs

- Cash put into traditional IRAs is tax deductible (income limits apply if you are covered by an employer sponsored retirement policy)

- Withdrawals from traditional IRAs are taxed at your ordinary income tax rate, so if you are in the 15% tax bracket you would pay out 15% on the amount withdrawn, in case you're in the 28% tax bracket you'll pay off 28% on any distributions, etc.

- The IRS requires you to take a minimum amount out (based on your age and the account balance) after age 70 1/2.

Roth IRAs

- Contributions to a Roth IRA are not tax deductible.

- You might not be allowed to contribute to a Roth IRA when your earnings is above the limits.

- Qualified withdrawals (must be at least age 59 1/2 and have had the Roth for no less than five years) are not subject to income tax.

- Unlike traditional IRAs, you are not required to take cash out of your Roth IRA when you reach age 70 1/2

Should You Do a Roth Conversion?

You need to consider converting to a Roth IRA if:

- You expect to be in exactly the same or higher tax bracket when you retire (or when you will need the funds),

- You won't need the money you convert for 5 years or more, and

- You could afford to pay off the taxes on the conversion without dipping into your retirement savings.

It's imperative to note that just because you can convert to a Roth IRA doesn't mean you should convert to one. You must check with a financial or tax expert to find out if a Roth IRA conversion is right for you, since every situation is completely different. A Roth conversion in 2010 might not make sense for you, but a conversion in future years could make sense if tax laws change or your situation changes.

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