Last Updated: October 5, 2009   

If you know the federal government will be lifting the income limits on Roth IRAs (Individual Retirement Accounts) conversion next year, congratulations! According to research by released by Fidelity Investments, you are in a minority.

"I strongly encourage my clients to convert to a Roth IRA," said FPA member Cindy Menker, CPA, CFP®, president Contour Financial. "There are a few exceptions, of course: if they are in a very high marginal tax bracket now and anticipate their income will significantly fall in retirement."

According to Menker, a Roth IRA is a rare gift from our government. "Many of us believe tax rates will only be increasing in the future," she said. "With low rates and account balances down, 2010 is an excellent time to convert to a Roth. People doing the conversion in 2010 can even spread the tax liability over two years, in 2011 and 2012."

According to FPA member, Brenda Knox, CFP®, of Financial Elements, Inc. there are some other things to consider about a Roth IRA conversion:

• A Roth IRA conversion becomes most advantageous if you:
  1. Can pay the taxes with money from outside the IRA.
  2. Have a long time before needing the funds. One of the best scenarios is when someone can leave the ROTH to their children who can then withdraw tax-free over their own life expectancy. 
• The Roth IRA does not have a Required Minimum Distribution requirement which again makes it advantageous for retirees that may not need to take withdrawals from these funds.
• There are many variables to consider when considering a Roth IRA conversion. You should consider your current tax rates and your assumed tax rate in retirement, taking into account the possibility of future tax rates to increase as well.  
• You don't have to convert all of your IRA money to a Roth IRA. You can convert just a portion of your IRA accounts. 
• A young worker in a relatively low tax bracket now would likely gain more long-term benefit from a Roth IRA account than a traditional IRA. One strategy might be to maximize you workplace pre-tax 401(k) account to the company match and then save additional funds to a Roth IRA. 

If you think you may benefit from a Roth IRA conversion, consider consulting a financial planner.  Find a financial planner who's right for you.