As of 2010, the $100,000 modified adjusted gross income limit for conversion of IRAs to Roth IRAs has been waived. This presents an opportunity for thousands of investors whose income made them ineligible for Roth conversions in the past. In addition, the taxable income resulting from a Roth conversion (in 2010 only) can be spread out over two tax years. Half of the income can be recognized in tax year 2011, due by April 15, 2012 (or Oct. 15 with extensions), and the other half can be recognized in 2012, due April 15, 2013 (or Oct. 15 with extensions). Alternatively, the income can be recognized in 2010, the year of conversion.
Why consider converting? Well, the advantages of a Roth IRA can be compelling. The Roth is funded with after-tax dollars, and all future growth and income, subject to a five-year holding period, can be withdrawn completely tax-free. Roth IRAs are not subject to required minimum distributions at age 70 1/2, and a spousal beneficiary can take over a Roth IRA, make it their own and allow it to continue to compound. Distributions are required only after a non-spousal beneficiary inherits the account. A Roth IRA can provide a multigenerational shelter from taxes, no matter how high tax rates might rise in the future.