This year might be the ideal time to reposition retirement savings and enhance tax savings.

The repeal of the income limit on a Roth IRA conversion has kicked in just when your IRA account might be at its weakest and tax rates could be at their lowest.

Individual retirement accounts

With both Roth IRAs and traditional IRAs, investments are allowed to build tax-free. The difference is in when you pay taxes.

>> With a traditional IRA, the contributions may be tax deductible. If so, you pay no taxes upfront, but you will pay taxes when you withdraw the money at retirement. Or worse, high-income taxpayers get no deduction and pay tax on distributions.

>> Contributions to a Roth IRA are made with after-tax income, so there is no upfront deduction. The tax benefit is that withdrawals are completely tax-free upon retirement, if done properly.

Most taxpayers are allowed to roll over a traditional IRA into a Roth IRA at any time by paying taxes on investments immediately in exchange for no taxes at withdrawal.

But pre-2010 tax rules prevented any taxpayer with more than $100,000 in adjusted gross income from rolling over into a Roth IRA. Fortunately, this limit disappeared in 2010.

Reasons to roll over

But what's the benefit? Why pay taxes on the investments now, when you can leave them in a traditional IRA and postpone taxes until retirement?

1. Federal tax rates may have hit their lowest point. The top federal tax rate of 35 percent is scheduled to revert to 39.6 percent in 2011. Paying tax on your account now with a rollover locks you in at 35 percent. You won't have to worry about tax increases, because proper Roth IRA withdrawals are completely tax-free.  What's more, the taxes on a 2010 conversion can be paid in equal installments in 2011 and 2012. (It might not make sense to defer these taxes if rates go up as scheduled in 2011).

2. Your account might be at its weakest. The economic downturn has hit the stock market, artificially depressing the value of many investments. Rolling over into a Roth IRA in 2010 when your account has hit bottom could save you in taxes. Less value means less tax. You could be thrilled your taxes are out of the way when the market and your investments recover.

3. You can pay your tax bill on a Roth IRA conversion with money from outside the account (and must do so if you are under the age of 59 1/2 to avoid a 10 percent excise tax for early distributions from your traditional IRA). Your full account balance will then become tax-free, effectively increasing the amount of your tax-preferred investment.

Roth IRAs don't require distributions. Roth IRAs aren't subject to the same minimum distribution requirements as traditional IRAs. You won't ever have to worry about complying with the complicated rules regarding mandatory distributions that begin at age 70. Take your money out if and when you want to, and whatever is left can be passed on to your heirs.

As with any retirement account transactions, you should seek guidance from your retirement consultant or tax preparer for the specific rules and required forms for reporting your conversion. Thinking about retirement now might save you money in the future.