In May 2006, a significant change in the tax laws about converting a traditional IRA to a Roth IRA was enacted. That change allows everyone in the year 2010 to convert traditional IRAs to Roth IRAs-which has not been available in the past.
   Before this new law took effect, individuals were permitted to convert a traditional IRA to a Roth IRA, provided that they pay taxes on the converted money and obeyed an income limit, which determined their eligibility to convert.

Income Limits on Conversions
Upper income taxpayers-those with adjusted gross incomes of more than $100,000, whether single or married-were not eligible to make such a conversion. In addition, if you earned $110,000 or more ($160,000 for married joint filers) then you also weren't eligible to contribute to a Roth IRA. These two tax laws effectively precluded upper income taxpayers from enjoying the benefits of a Roth IRA. They couldn't convert their traditional IRA to a Roth, and they couldn't fund one either.

IRA Conversions in 2010
Back in May of 2006, then-President Bush signed a $70 billion tax cut provision that changed the eligibility rules for Roth IRA conversions. Starting in 2010, and all years after, taxpayers with modified adjusted gross income of more than $100,000 will be allowed to convert a traditional IRA to a Roth IRA. But special for 2010 is the fact that the income taxes due on the 2010 conversion can be spread over two years. So the 2010 conversion amount may be included as taxable income in 2011 and 2012-helping to spread out the tax bite. In subsequent years the conversions will be included in income during the tax year in which it is completed.
   Removing the Roth IRA conversion cap however doesn't mean anyone can fund a Roth IRA, but it does mean that anyone can convert an existing IRA to a Roth IRA.

Why it's a Consideration
The big benefit: a Roth IRA allows tax-free growth and tax-free income distributions at age 591/2 or older and as long as you have held your Roth account for 5 years or longer. Contributions to a Roth IRA are after-tax, which means the younger you are, the longer time frame you have for tax-free growth.
   The catch: you will have to pay ordinary income taxes on the amount you convert. Whatever amount is converted is added to your income for the year. However, there may be a silver lining: With the market being down, most likely your account value may be the lowest it has been in years. This means by converting now you may pay lower taxes.
   It is also worth noting there is a great chance that tax rates could increase in the years ahead. This is another reason why now may be as good time as ever to convert. If converting may send you into a higher tax bracket, you could consider doing a partial conversion.
   Even if you are older, a Roth still may make sense. With a Roth, there is no mandatory withdrawal rule allowing you more time to accumulate tax-free. Also, under the present tax laws, converting a traditional IRA to a Roth can lower the size of your taxable estate. This type of prudent estate planning could allow for decades of tax-free growth for those converted assets.
   A few additional estate planning points: If you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. This allows those Roth IRA assets to keep compounding tax-free during the rest of your spouse's lifetime.

Something to Consider
Here's why you may want to think twice about converting to a Roth. In a word, taxes. The IRS treats a conversion from a traditional IRA to a Roth IRA as a taxable event. You will have to pay taxes on the amount you convert. Do you have enough in savings to cover these taxes?
   You may be tempted to use your current IRA assets to pay for the tax on the conversion. Here's why that is not a good choice. First off, if you're under 591/2, you're facing a 10 percent penalty on the amount you withdraw, and secondly they amount you take out to cover the taxes will lose the chance for tax-free compounding going forward. 
   Before converting from a traditional IRA to a Roth, be sure to consult your tax adviser. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.