If you’ve been thinking about whether to convert a traditional IRA or 401(k) account to a Roth account, it’s worth giving the matter another hard look before the end of the year. When you convert a traditional IRA to a Roth IRA, or a traditional 401(k) account to a Roth 401(k) account, the converted funds are subject to federal income tax in the year that you make the conversion (except to the extent the funds represent nondeductible after-tax contributions). With tax rates set to go up next year, waiting to do a conversion could mean that your immediate tax hit for doing the Roth conversion goes up as well. Converting now can also have a long-term benefit–future qualified distributions from Roth IRAs and Roth 401(k)s will be free from federal income tax. That could make a big difference in retirement if you’re paying income tax at a higher rate at the time. Whether a Roth conversion makes sense for you depends on a number of factors; but if it makes sense for you, it might pay to think about acting this year, rather than waiting. One more thing to consider : If you convert a traditional IRA to a Roth IRA and it turns out to be the wrong decision (e.g., current tax rates get extended, and you think you would have been better off waiting to convert), you can recharacterize (“undo”) the conversion. You’ll have until October 15, 2013, to recharacterize a 2012 Roth conversion–effectively, treating the conversion as if it never happened for federal income tax purposes.

If you need assistance, please contact Steve Siesser at ssiesser@verizon.net