Through 2009, you can convert a traditional IRA to a Roth IRA only if your income does not exceed $100,000. In 2010, the income cap will be eliminated. Therefore, if you’re interested in a Roth IRA conversion and your income this year will not be over $100,000, you have a choice:
* Convert now. You’ll owe income tax on any pretax money in your traditional IRA, on your 2009 return. This choice may make sense because a conversion now might be less taxing, while your IRA balance is low after the stock market crash.
Also, converting in 2009 starts the clock for tax-free withdrawals at January 1, 2009. After five years and after age 59 1/2, all Roth IRA withdrawals are tax-free.
* Convert later. Waiting until 2010 to convert a traditional IRA to a Roth IRA will allow you to postpone tax payments. For one year only, the tax on a 2010 Roth IRA conversion can be paid in equal installments on your 2011 and 2012 returns.