Recent legislation has finally made it possible for anyone to use IRA conversion to transform their current IRA accounts – and even a 401(k) plan – into the Roth account. If you are one of these high income individuals who have previously been denied the opportunity to convert your IRA account into a Roth, then the time is ripe for you to take advantage of the new rules that went into effect at the beginning of 2010.

The changes

IRA conversion rule changes were made possible with legislation passed in the previous session of Congress. The new rules removed the cap that blocked anyone who made more than $100,000 a year – in adjusted income, of course – from using the process. Although the current rules are not set to expire at any point in the future, the fact is that laws can change very quickly. As a result, anyone who has considered Roth IRA conversion in the past, but been barred from doing so, should use the current window of opportunity to accomplish that goal.

Why convert?

If you haven’t considered Roth IRA conversion yet, chances are that you haven’t looked into the process too deeply. Though these conversions are entirely voluntary, there are some who feel an almost mandatory compulsion to make the switch simply because of the increased benefits that take place at the withdrawal point. Unlike regular IRAs, the retirement distributions that you receive from your Roth IRA account are untouched by the taxman. For that reason alone, millions of people have taken advantage of the new Roth IRA conversion eligibility standard.

The catch

Naturally, there is a catch to the entire Roth IRA conversion issue. In this case, the catch is that when you convert your traditional IRA account into a Roth, you will have to pay taxes on the income at that exact point in time. This tax burden is dependent upon several factors, but the fact remains that you will probably have to pay some taxes. Of course, if any of your contributions to the account were not tax-deductible when you made them, then they might not be subject to the tax – since they were taxed once already. The important thing is that those who are considering Roth IRA conversion should seriously consider doing it now. The new rules provide that all 2010 conversions can result in the income tax being split over the next two years. That can help to lower tax brackets and tax liability for the 2011 filing.

The bottom line is that now is the time to execute your Roth IRA conversion, especially if you can withstand the tax you will incur. This opening will probably not last forever, as Congress will no doubt find some reason in the future to bar higher incomes from access to Roth accounts again. For now, however, the road to Roth is clearly marked for everyone.

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