Now that Congress passed The Unemployment Insurance Reauthorization and Job Creation Act of 2010 (HR 4853) on December 16, converting an IRA or 401(k) to a Roth looks more appealing.
For 2010 only, the account owner can choose to have the taxable accumulation of the the account taxed one-half in 2011 and one-half in 2012, or to have the entire amount taxed in 2010. Since we now know the federal tax rates won’t increase for 2011 and 2012, the Roth conversion looks much more attractive.
There is still the issue of coming up with the cash to pay the income taxes. In order to get the maximum benefit from the conversion, all of the funds should be kept in the Roth account. Most individuals don’t have liquid funds available to pay the tax for the conversion.