What will we have to pay to convert my husband's traditional IRA to a Roth IRA?

Pencil on income tax form

Q. What will we have to pay to convert my husband's traditional IRA to a Roth IRA?

A. Earnings and deductible contributions in the traditional IRA will be subject to federal and state income taxes when you make the conversion to a Roth IRA.

For 2010 only, you can choose to postpone the tax and pay it in equal installments on your 2011 and 2012 tax returns. Or, if you wish, you can pay the entire tax when you file your 2010 return.

Since the earnings and deductible contributions will be treated as taxable income, it's possible that a large conversion would push you into a higher tax bracket and increase the tax on the converted amount.

To minimize the tax bite for any one year, you might consider doing partial conversions over several years. This gradual approach has its downside, since income tax rates today are unusually low and could rise over the next several years. Improving financial markets could also raise the value of your account, and consequently, the taxes you owe.

While Roth IRAs have a number of attractive features, converting from traditional IRAs isn't for everyone. It makes the most sense when:

These are just guidelines.

This Roth IRA conversion calculator can help you make a decision by figuring out exactly what the costs and taxes will be for converting your traditional IRA to a Roth.

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