Converting a traditional IRA into a Roth account is appealing for two reasons. First, income and gains can accumulate tax-free and eventually be withdrawn tax-free. Second, a Roth IRA is exempt from the minimum required distribution rules that force you to start taking taxable withdrawals from traditional IRAs after age 70 . As we embark on what will probably be the biggest year ever for Roth conversions, here are 10 key things to keep in mind.

1. Converting Almost Always Triggers a Tax Hit.

This is the one reason why a Roth conversion is not a no-brainer: The tax rules treat the converted amount as a distribution from the traditional IRA. This usually results in an increase in taxable income and a higher tax bill.

2. The Perfect Storm for Roth Conversions.

If the value of your traditional IRA is still beaten down from the 2008 stock market meltdown, and you expect to be in higher tax brackets in future years, now might be the optimal time to convert to a Roth. You ll pay a relatively low tax cost if you report the conversion income on your 2010 return, thanks to today s favorable tax rates and the still-depressed value of your traditional IRA. And you ll dodge the possibility of higher (possibly much higher) future tax rates on the income and gains that accumulate in the Roth IRA as the economy recovers. I expect these perfect-storm conditions to make 2010 the year of the Roth conversion.

3. No More Income Restriction on Conversions.

Before 2010, you could only do a conversion if your modified adjusted gross income (MAGI) was $100,000 or less. This year the income restriction is history -- which is the other reason I expect 2010 to become known as the year of the Roth conversion.

4. You Can Defer the Conversion Tax Hit.

You can choose to spread the taxable income triggered by a 2010 conversion over the following two years for federal income tax purposes. Specifically, you can report half the income on your 2011 return and the other half on your 2012 return. This procedure will defer the conversion tax hit, but that may or may not be a good idea. It all depends on the tax rates you ll be paying in 2011 and 2012. If you expect significantly higher tax rates in those years, you might be better off following the standard procedure of reporting 100% of the conversion income on your 2010 return. Thankfully, you can postpone the decision until as late as Oct. 17, 2011, by extending your 2010 Form 1040 to that date.

5. Converting Can Jump-Start Your Roth Savings Program.

Since there s no dollar limit on conversions, converting a hefty traditional IRA into a Roth is the quickest way to stuff a bunch of money into a Roth account and start collecting tax-free income and gains. The alternative of making annual contributions only allows you to put $5,000 a year into your Roth IRA, or $6,000 a year if you re 50 or older.

6. You Can Swing Both Ways.

Doing a 2010 conversion won t affect your ability to make a regular annual Roth contribution for this year. You can probably do both! For 2010, the privilege of making a regular annual contribution is phased out between MAGI of $105,000 and $120,000 for unmarried individuals and between $167,000 and $177,000 for married joint filers.

7. You and Your Spouse Can Act Independently.

You can convert one or more traditional IRAs set up in your name. Your spouse can do whatever he or she wants with any traditional IRAs set up in his or her name. What one spouse does with his or her IRAs has no impact on the other spouse.

8. Partial Conversions Are Allowed.

If you have several traditional IRAs, converting need not be an all-or-nothing proposition. You can convert some accounts and leave others alone. Similarly, you could convert only a portion of the balances in one or more traditional IRAs.

9. You Can Reverse an Ill-Fated Conversion.

If you convert an account in 2010, you ll have until Oct. 17, 2011, to recharacterize it back to traditional IRA status. So if the account tanks between now and then, you can use the recharacterization privilege to reverse the conversion and eliminate the inflated tax hit. You re back to square one with no tax harm done. For more details, read my column on reversing Roth IRA conversions.

10. You Can Hedge Your Bets by Setting Up Multiple Accounts.

Say you want to convert a big traditional IRA. Consider doing the deal by spreading the converted amount into several smaller Roth accounts. That way, you can follow different investment strategies for each. Then if one of the accounts tanks (for example, because it s invested in stocks that take a dive), you can reverse the conversion for that account (and avoid the inflated conversion tax hit on that account) while leaving the better-performing accounts in tax-favored Roth status.

The Bottom Line

In general, converting makes sense if you: (1) expect to be in the same or higher tax bracket during your retirement years, (2) expect to leave the Roth money invested for long enough and at a high enough rate of return to more than recover from the upfront conversion tax hit, and (3) can afford to pay the conversion tax hit from sources other than withdrawals from your tax-favored retirement accounts. If you meet these basic criteria, this year could be the optimal time for a conversion. That said, please consult with your tax pro before pulling the trigger.

For more information on Roth conversions, please take a look at the following guides and worksheets: Roth IRAs: To Convert or Not, Which IRA Is Best?, Estate Planning With a Roth IRA, and Roth IRAs: You Wanted to Know.