Q: My understanding is that in 2010 traditional IRA accounts can be converted into Roth IRA accounts without penalty. Should I make the change?—G. Fuller, via email

A: As of January 1, the income limit for Roth IRA conversions expired and married couples who file their returns separately are now allowed to make the switch. Previously, households with modified adjusted gross income greater than $100,000 were ineligible for Roth conversions, and separate filers were largely barred.

But it’s important to remember that even though the rules now allow almost anyone to make the jump to a Roth IRA, there is a real cost associated with making the change because the conversion triggers a taxable event.

Contributions to traditional IRAs and 401(k) accounts are made before taxes; either no taxes were paid on the money, or you were able to take tax deductions against the contributions. In exchange, you paid tax on the money as it is drawn down in retirement.

With Roth IRAs, you pay taxes on your contributions as they go in so that you can withdraw the money tax-free later. In other words, if you didn’t pay taxes when the conversion is made, you’d have a government sanctioned tax dodge–not the most appealing prospect from Internal Revenue Service’s (IRS) perspective.

But the IRS did make a concession on that front, allowing you to spread any taxable income created by conversion equally across 2011 and 2012 or to recognize all of the income in 2010.

And because the conversion is treated as a distribution from your original plan, those under the age of 59.5 years will also be subject to a 10-percent penalty for breaking into the piggy bank early.

A fair amount of guesswork goes into deciding whether you should make the conversion. The main consideration is whether you think you’re tax bill will be higher or lower in retirement than it is now, an outcome that depends on your own personal situation and the vagaries of tax policy.

If you think you’ll face a higher tax rate in your retirement years, it makes sense to make the conversion now and pay relatively low tax bill. But if you think you’ll face a lower tax rate in the future, it makes more sense to stay in your current tax-deferred plan.

Those who stand to benefit the most from the conversion are young people who are almost certainly to find themselves paying more in taxes later in life. Converting to a Roth IRA now will give them more time to reap the rewards of tax-free growth.

Investors who think they won’t necessarily need the money to fund their retirement also stand to benefit is there are no required distributions on Roth IRAs. In that case, heirs who inherit the plan will face significantly reduced tax bills.

But as we always say, it’s best to seek advice from a qualified tax advisor who is familiar with your personal situation before making a final decision.

Q: I invested in Iberiabank (NSDQ: IBKC) shortly after you recommended the stock, and the shares are up about 20 percent. I recently read that financial sector is the most undervalued group based on forward earnings. Do you still view domestic banks in a positive light, or do you favor international names?–Miles Catalano

A: Names like JP Morgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) should fare better in 2010, as the US economy is poised to surprise on the upside and the unemployment situation, though far from ideal, appears to have stabilized.

Investors should consider balancing positions in these larger names with investments in smaller banks that stand to benefit from FDIC-assisted transactions; the list of bank failures grows with each week, and well-capitalized institutions in the Southeast and other hard-hit areas stand to benefit from these highly accretive deals. Iberiabank closed several such deals in 2009, establishing a substantial presence in the coveted Florida market for a song.

In the Midwest, take a look at MB Financial (NSDQ: MBFI), which should continue to benefit from upheaval in the Chicago market. Washington Federal (NYSE: WFSL), which Eric Cinnamond recommended in last month’s Rukeyser Interview, is well-positioned to take advantage of bank failures in the Northwest. The South still offers the most opportunities for growth-oriented investors, but pick your horses wisely. For exposure to emerging markets, consider HSBC Holdings (NYSE: HBC) or Standard Chartered (UK: STAN).