T hirteen million households are eligible to convert tax-deferred traditional IRA accounts to tax-exempt Roth IRAs in 2010. That includes millions who couldn’t do so previously because the old rules did not allow people with annual incomes of $100,000 or more to convert.

The new rules eliminating that income cap have raised many questions for those considering such a move. We dealt with the basics, including who should and shouldn’t convert to a Roth IRA, in an article in the October 15, 2009, issue of Bottom Line/Personal (available on our Web site).

Answers to some remaining questions...

If I convert, do I have to convert all the money in my traditional IRAs?
No. You can convert any portion of your traditional IRAs. As a result of the conversion, you will have to pay tax on any amount that you are converting if you never paid tax on it before, but you will never pay tax again on the Roth IRA money, no matter how much it appreciates. You can avoid pushing yourself into a higher tax bracket by spreading the conversions out over several years. And for the amount you convert in 2010, you can declare half on your tax filing for 2011 and half for 2012.

What if I have both pretax and after-tax money in my IRAs?
On any Roth IRA conversion, you will owe income tax based on what percentage of your overall IRA assets those pretax dollars represent.

Example: John Smith has two traditional IRAs. One holds $20,000 of pretax dollars and the other holds a $4,000 after-tax contribution plus $1,000 of gains that have never been subject to income tax. Therefore, John has a total of $21,000 in pretax money, which is 84% of his total. So on any Roth IRA conversion, 84% of the amount converted will be taxable income.

Can I convert money in my traditional 401(k) accounts directly to a Roth IRA, including money that I recently contributed to my 401(k)?
Yes, but only if you are eligible to roll over your traditional 401(k)s to a traditional IRA. Typically, that means that you have left or are leaving your employer. In that situation, you can convert any or all of the money in your traditional 401(k) to a Roth IRA, including money that you just contributed.

What if the market crashes again and the value of my converted account plunges? I will be liable for tax on money that I’ve lost!
There is a tax escape hatch. You have until October 15 of the next calendar year to "recharacterize" the account back to a traditional IRA and not pay tax on the converted money. Then, in the calendar year after that, if you have waited at least 30 days, you can convert it back to a Roth, hopefully with a lower tax bite than you would have paid on the original conversion.

Are there still limits on my income that could prevent me from contributing directly to a Roth IRA?
Yes and no. Technically, high-income taxpayers (those with modified adjusted gross incomes of more than $120,000... or more than $177,000 for joint filers) still are prevented from contributing to a Roth IRA in 2010.

But you can get around that. First, contribute after-tax dollars -- money on which you already have paid taxes -- to a traditional IRA. Then convert that traditional IRA to a Roth. You will pay additional tax only on the amount by which the traditional IRA has appreciated.