
In 2010, Congress has allowed owners of traditional IRA’s to convert them into ROTH IRA’s. You may recall that a ROTH IRA allows for tax free withdrawals at retirement, no required minimum distributions and they are funded with after tax, (non deductible) contributions. Obviously if you convert, there is a catch – you either pay the taxes in 2010 or split the tax bill evenly in 2011 and 2012 (at the 2011 & 2012 tax rates).
One of the considerations to convert is whether you think that your federal income tax bracket will be higher at retirement than it is presently. A linchpin in the decision making process is the ability to pay the taxes ‘out of pocket’ rather than out of the traditional IRA.