There's one silver lining to the current economic malaise.

With portfolios and incomes down, this could be an opportune time to convert a traditional IRA into a Roth IRA. If your income limits are too high to qualify you for a conversion, be aware that, in 2010, the IRS is allowing conversions for taxpayers at all income levels.

We walked through the pros and cons with Kathy Boyle, a CERTIFIED FINANCIAL PLANNER (TM)  and president of Chapin Hill Advisors.

What makes a Roth IRA different from a traditional IRA?

A Roth IRA is an IRA that you put post-tax contributions in and you never pay tax again. In 2009, you can contribute $5,000 if you are under 50 and a catchup $1,000 if you’re 50 or older. There is, however, a limit on income.

If you’re single in 2009, allowable contributions start to phase out at $105,000 in adjusted gross income. (Completely phased out at $120,000.) For married people, the limit on joint income starts at $166,000 and phases out completely at $176,000.

Next year, the IRS is removing the income restrictions for conversions.

Is this a time when it makes a lot of practical sense to convert?

It does. Taxes are going to continue to increase at the federal and state level.

For Boomers, and Gen X and Gen Y, your tax bracket is likely to be as high if not higher than your current bracket when you retire. In the olden days, you left your money in a traditional IRA, because you’d have fewer sources of income -- and the tax paid when you withdrew would be lower than what you’d pay now.

It doesn’t work that way any more. We're likely to need enough income in retirement to put us in a fairly high tax bracket. Consider taking the hit now. A critical point: For this conversion to make sense, you must use other savings to pay the tax owed. You'll pay those taxes now -- but never again will your Roth IRA be taxed!

The caveat: In this environment, how do you make it grow? If you’re 7 years or fewer away from retirement, roll over into an IRA, and pay the taxes, be careful. If you put it into a Roth and lose 50% of the value by moving too aggressively, you can’t ever recover. You want to try to preserve your capital.

So how do I evaluate if it’s the right choice for me to convert?

Say you have a $100,000 IRA that you rolled over from a former company 401(k). Right now that $100,000 might be worth $60,000. If you convert now, and pay taxes on the income at a 25% bracket, that’s $15,000 in taxes you need to come up with.

You need to have an available source for that $15,000. If you use the IRA to fund the $15,000, the numbers don’t make a lot of sense. You’ll have to rob Peter to pay Paul.

As part of the 2010 one-time removal of income restrictions, the IRS is allowing you to take 2 years to pay the taxes on a conversion.