The Roth IRA conversion is generally a great opportunity to better plan for your financial future.  However, it is really important to understand the mechanics of the Roth IRA conversion process and the economics as applied to your specific financial situation.

Self Employment Tax Not Triggered
To directly answer your question, the conversion of a traditional IRA into a Roth will not trigger any self employment taxes.  In addition, if you convert in 2010, you can essentially get an interest free loan from the government. The income tax from the conversion is not payable until you file 2011 and 2012 returns — half in each year.

Keep in mind that there are so many variables to consider so it is nearly impossible to quantify whether there is an advantage to convert or not without having all of the facts.

We would strongly recommend that you do some scenario analysis comparing what tax bracket you are in now and what you think you might be when you begin taking distributions. Apply those assumptions to a Roth conversion now, versus keeping the funds in a traditional IRA or any other option you are considering.

What’s the Future Benefit
Significant. Remember, the appreciation on a Roth IRAs is tax-free & thus you can withdraw funds without having to pay taxes on the principal or appreciation when they reach the age of 59 1/2. This doesn’t mean much to someone in their 20s or 30s now but it most certainly will in the future.

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