Big Tax Decision Awaits Those With IRAs

CHICAGO (TheStreet) -- If you have money in an Individual Retirement Account, or IRA Rollover account, you're about to be faced with a big financial decision. Should you convert your traditional IRA to a Roth IRA? But your answer will depend less on mathematical formulas than on your basic beliefs about the future.

Answer these two questions: Question #1: Do you think personal income tax rates will be higher or lower over the next 10 to 20 years? Question #2: Do you think the government will keep its promise to allow tax-free withdrawals from Roth IRAs over that same period?

To convert or not to convert: The reason your answers are so important is that starting in 2010 anyone, not just those with incomes under $100,000 -- will be able to convert a traditional IRA to a Roth IRA. There's one catch: You have to pay income taxes on the amount you convert to the Roth.

Remember, your IRA or IRA Rollover is likely to be filled with contributions that were deducted from your income when you made them, as well as any remaining gains that grew tax-deferred over the years.

The attraction of a Roth IRA is that while you don't get a deduction for contributions, all of those future withdrawals are promised to be tax-fee. So you have to pay the taxes sometime, and when you do a conversion, the taxes are due now. Well, almost now. If you do the conversion from a traditional IRA to a Roth IRA in 2010, you have a choice of recognizing all that income in the same year (2010) or split equally between the next two tax years (2011 and 2012).