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(Dow Jones) While high-income investors can convert certain retirement savings to a Roth individual retirement account for the first time beginning next year, careful thought is required. For example, moving all eligible assets at once may be a bad idea for some, financial advisors say. 


"Just because you can doesn't mean you should," says Stuart Ritter, a certified financial planner with T. Rowe Price Group Inc. "It's potentially a great opportunity. You need to investigate." 


Brokerage firms and financial advisors have been scrambling to educate investors about the conversion opportunity arising when, effective Jan. 1, the U.S. government eliminates the $100,000 income limit for converting money to a Roth IRA from a traditional IRA or certain tax-deferred employer-sponsored retirement plans. 


Research shows that many investors are unfamiliar with, or confused by, the new rule. Moving money to a Roth IRA won't necessarily be appropriate for all investors, so analyzing one's specific circumstances is crucial. One key––and difficult to predict––consideration is future tax rates. 


Investors will need to pay ordinary income tax on the taxable amount they convert but future withdrawals will be tax-free if the money has been in the Roth IRA at least five years and the withdrawal meets other qualifications, such as the account holder being at least 59 1/2. Unlike traditional IRA holders, investors with a Roth aren't required to start making withdrawals when they reach age 70 1/2. 


The law applies only to Roth IRA conversions. Income limits still prevent high earners from making new contributions to a Roth IRA. 


One widely misunderstood provision applies only to conversions made in 2010. Investors can either include the taxable conversion amount in their 2010 income and pay the taxes then, or they can divide the taxable income equally between 2011 and 2012 and pay whatever tax is generated by the income in those years. 


Investors should also consider state tax rates and treatment of conversions, Ritter says. 


Wisconsin, for example, may not allow taxpayers to divide and defer their taxable income for conversions made in 2010. And state taxpayers with modified adjusted gross incomes over $100,000 will be subject to certain penalties. 


For some investors, making partial Roth IRA conversions over time can make sense. Converting a large amount could push someone into a higher tax bracket for that year. Smaller conversions mean smaller tax hits. 


Also, having money in various types of accounts can provide a hedge against the future. Paying taxes on a conversion now may benefit investors who expect their tax rate to be higher when they withdraw money from the account. Those who expect their tax rates to be lower in the future might prefer to wait. 


As a general rule, the further an investor is from withdrawing money from an IRA, the more advantageous paying taxes on a Roth conversion now may be because the money has more years to grow tax-free, T. Rowe Price says.

Michael Beriss, a senior financial advisor with Ameriprise Financial Inc. in Bethesda, Md. and a former tax attorney, says he rarely advises clients to convert their entire IRA to a Roth.

One of his clients retired after making millions of dollars from the technology bubble early this decade. The client still works as a consultant and his income varies widely from year to year. Beriss has been helping him shift a portion of his IRA to a Roth during the low-income, low-tax-rate years. 


"It's not a one-time question," Beriss says of a conversion. "It's not an all-or-nothing question. It's an ongoing process."

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