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

Why are Roth IRAs in the news a lot this year? Before, Roth IRA conversions were limited to people who earned under a particular income limit ($100,000). A change in the guidelines, effective as of January 2010, removes the income restriction which means much more people are allowed to to convert from traditional IRAs to Roth IRAs.

A part of this new rule is the flexibility to pay the taxes from any conversions carried out in 2010 over two years. Rather than having to pay off the taxes from the conversion all on one tax return, the IRS is permitting you to pay half in 2011 and half in 2012.

Though the brand new regulations may seem too good to pass up, you ought to check out the situation very carefully before jumping right into a Roth conversion in 2010. Just because you can convert to a Roth doesn't mean you should do a conversion, at the very least not straight away.

Before you make a decision on whether to convert or not, here are a few fundamentals concerning traditional and Roth IRAs you ought to be aware of:

Traditional IRAs

- Money put into traditional IRAs is actually tax deductible (income limits apply in case you are covered by an employer sponsored retirement plan)

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actually taxed at your ordinary income tax rate, so if you're in the 15% tax bracket you would pay 15% on the amount withdrawn, if you're within the 28% tax bracket you will pay 28% on any distributions, etc.

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

Roth IRAs

- Contributions to a Roth IRA are not tax deductible.

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

- Qualified withdrawals (should be at least age fifty nine 1/2 and have had the Roth for at least five years) aren't subject to income tax.

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

Should You Do a Roth Conversion?

You should think about converting to a Roth IRA if:

- You anticipate to be in the same or higher tax bracket when you retire (or when you'll need the funds),

- You would not need the money you convert for 5 years or more, and

- You can afford to pay the taxes on the conversion without dipping into your very own retirement savings.

It is important to note that just because you can convert to a Roth IRA does not imply you need to convert to one. You must check with a financial or tax professional to determine if a Roth IRA conversion is best for you, since each situation is different. A Roth conversion in 2010 might not make sense for you, but a conversion in future years might make sense if tax laws change or your very own situation changes.

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