Good time to convert a Traditional IRA to a Roth IRA?
If you plan to convert an IRA to a Roth, you may want to wait untl 2010.
The tax on 2010 conversions can be deferred and spread out over two years. You can have 50% of the conversion income taxed in 2011 and the balance in 2012. Also, the ban on conversions by high incomers will not apply after this year, the rule that previously stated that taxpayers with Adjusted Gross Incomes over $100,000 aren't permitted to switch to a Roth.
However, top bracket filers who convert in 2010 may want to pay tax up front. With the top rate likely to go from 35% to 39.6% after 2010 the conversion income would bear a greater tax if the spread were used, absorbing the benefit of the switch.
