Deadline Nears for Spreading Tax on Roth Conversion

If you want to take advantage of a one-time option to spread your tax bill over two years, you must convert to a Roth IRA by year-end.

This is the first year that anyone, regardless of income, can convert a traditional IRA to a Roth. Although you will have plenty of chances in the future to swap your tax-deferred retirement account for a Roth -- and pay taxes on the amount you convert -- 2010 is the only year that you have the option of spreading the tax on that conversion over two years. The window closes on December 31.

So if the prospect of creating tax-free income in retirement appeals to you, you might want to take the plunge and convert to a Roth by year-end. If you change your mind, you can undo the conversion later, and it won’t cost you a dime.

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Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance