Looking for a way to create tax-free income in retirement? The federal government has a great deal for you. For 2010 the Internal Revenue Service has lifted the $100,000 income limit on Roth IRA conversions, and it is allowing investors to pay the resulting tax bill over a two-year period.

This rare event is generating considerable excitement among the many consumers who have long wanted to transform their traditional IRAs and old 401(k)s into Roth accounts, but exceeded the maximum income limit.

“First Command Financial Advisors are seeing significant interest from younger clients with long-time horizons, older people with estate planning needs and consumers of all ages who are concerned about tomorrow’s taxes,” said Terri Kallsen, CFP® and executive vice president of strategic development at First Command. “As word of this opportunity continues to spread, we expect even more middle-class American workers to recognize the value of this unprecedented opportunity. There may never be a better time for consumers to increase their retirement income by decreasing future tax bills.”

Since the introduction of the Roth IRA in 1998, many investors have converted their traditional IRAs and paved the way for significant tax advantages in retirement. Unlike the traditional IRA, in which investors can reduce their tax liability now through pre-tax contributions and defer taxes on contributions and earnings until retirement, the Roth IRA enables investors to assume the tax liability today through after-tax contributions, then enjoy tax-free income at retirement.

Although a conversion could mean you’ll have to pay taxes on the contributions you previously made to your traditional IRA, the IRS is offering an attractive payment plan. For conversions in 2010, the taxable portion of the conversion may be split equally, with one half included in income on the 2011 tax return and one half on the 2012 return.

“In a sense taxpayers are being offered an interest-free loan,” Kallsen said. “Financial Advisors are uniquely suited to help individuals determine the best way to pay these taxes over the two-year period.”

While obviously appealing, a Roth IRA conversion may not be the best choice for every situation. If you pay the taxes using funds from within your IRA, you’ll lose the potential tax-free growth on those dollars going forward. Of course, if you’re under age 59½, withdrawing funds from the IRA to pay the taxes would result in a 10 percent early withdrawal penalty. And if you need to sell existing investments to pay the conversion tax, any capital gains taxes that result from the sale may wipe out the positive impact of the conversion.

How do you decide if a Roth IRA conversion is right for you?

“Seek the assistance of your First Command Financial Advisor,” Kallsen said. “This is an ideal time to create a tax-free income stream for retirement. While this is a special opportunity, it may not make sense for everybody. That’s why it is important to consult with a professional.”

First Command Financial Advisors offer the tools and training to help you review your retirement goals and provide a comprehensive analysis that takes into account your unique financial situation. They can provide in-depth analysis, professional guidance and, if appropriate, an investment recommendation to complete your conversion.

As tax laws constantly change, this opportunity may not continue after 2010 — so it’s important to act now to take advantage of this unique investment tool and create a tax-free income stream for retirement.

For more information about Roth IRA conversions, visit www.firstcommand.com/rothnow/

First Command Financial Services, Inc. is the parent company of First Command Financial Planning, Inc. (Member SIPC, FINRA) and First Command Bank (Member FDIC). Financial planning services and investment products, including securities products are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Financial Services, Inc.  Banking products and services are offered by First Command Bank. Securities products are not FDIC insured, have no bank guarantee and may lose value.  In certain states, First Command Financial Services, Inc. is a separately registered domestic corporation and does business in California as “First Command Insurance Services.” A financial plan, by itself, cannot assure that retirement or other financial goals will be met. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP (with flame logo) ® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This article is provided for information purposes only and should not be considered tax or legal advice.  Should you require tax or legal guidance specific to your situation, please contact a tax or legal professional.