Does a Roth conversion always make sense?

3. You'll be in a lower tax bracket at retirement

If you keep your money in a traditional IRA, you pay taxes on the money as ordinary income as you withdraw it. So if your tax rate is going to fall upon retirement, you're generally going to save money by sticking with a regular IRA. And most people outside of the two top brackets historically see their tax rates fall when they retire.

To be sure, the government will almost certainly have to raise taxes to shrink the exploding budget deficit. But if Congress takes no action, tax rates are scheduled to rise for all brackets Jan. 1, 2011. So it's difficult to predict your future rates with any certainty.

4. You get pushed into a higher tax bracket

Converting to a Roth IRA adds the IRA's value to your ordinary income in the year that you make the conversion, except for conversions made in 2010. The income created by 2010 conversions can be spread evenly between 2011 and 2012 for tax purposes.

So if you decide to convert a $100,000 traditional IRA to a Roth IRA next year, $100,000 will be added to your ordinary income. That could put you in a higher tax bracket, which may turn the conversion into a losing proposition.

Increasing your income level can have other negative consequences as well. It may eliminate your eligibility for education and other tax credits that have income limits.

For those with children in college, the higher income level can wipe away your chance for financial aid. "From what I'm reading, colleges are including the extra income in their calculations," says Wiggins. "They aren't saying, 'Oh this is just a Roth.'"

5. You're going to give the IRA to a charity

If you give your IRA to charity, there's no savings created by a conversion because charities don't pay income taxes. So they won't have to pay any taxes if you give a traditional IRA. Also, if you're planning to give the IRA to heirs who will take the money out right away, resist doing a conversion. An heir who quickly takes money out of a Roth IRA defeats the purpose behind conversion -- which is to let the IRA grow for years to compensate for the initial tax payment.

So if you're thinking of converting to a Roth IRA, make sure it fits your financial situation before taking the leap.

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