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With the new 2010 rules coming, I think I have figured out a way to move at least part of a portfolio from a traditional IRA to a Roth IRA with little to no risk, and pay about a third less tax.

I'm hoping folks out there can take a look at this and see if I am off base.

The new rules in 2010 allow me to convert as much as I want from a traditional IRA (for example, a rollover from a previous company 401K) to a Roth IRA - as long as I pay the tax on it.

The rules have always allowed "recharacterization" - basically a "do-over", so you can UNconvert a converted Roth IRA back to a traditional IRA in the same tax year and pay no tax.

And there are these interesting ProShares ETFs:
- UltraPro S&P500 (ticker: UPRO) that is leveraged to have a daily goal of 3X the rise of the S&P 500 (so if the S&P gains 1%, this gains 3%),
and it's opposite:
- UltraPro Short S&P 500 (ticker: SPXU) that is leveraged to have a daily goal of -3X the rise of the S&P 500 (so if the S&P loses 1%, this gains 3%)

So if I try to take the conservative portion of my portfolio from traditional to Roth IRA, I would do it like this:

I am creating *two* different Roth IRA Accounts, let's call them "Bull" and "Bear". Let's say I have $20,000 in cash in the Traditional IRA and I want to move $13,000 to the Roth.

1) Convert $10,000 cash from the Traditional IRA into my Roth "Bull" account and put it all into UPRO
2) Convert $10,000 cash from the Traditional IRA into my Roth "Bear" account and put it all into SPXU
3) Wait for the stock market to move 10% (up or down, it doesn't matter) and sell everything in both "Bull" and "Bear" accounts
4a) If the S&P went up 10%, then theoretically I would have $13,000 in "Bull" and $7,000 in "Bear". Now I recharacterize "Bear" back to a Traditional IRA and remove the obligation to pay tax on the conversion of "Bear".
4b) If the S&P went down 10%, then theoretically I would have $13,000 in "Bear" and $7,000 in "Bull". Now I recharacterize "Bull" back to a Traditional IRA and remove the obligation to pay tax on the conversion of "Bull".
5) Now I have $13,000 in a Roth IRA (either "Bull" or "Bear" depending on how the market went) but I only have the obligation to pay tax on $10,000. My remaining $7000 is back in the Traditional IRA it came from.

Among the risks:
- The stock market doesn't move enough over the course of the year to make this worthwhile (seems unlikely)
- Tracking inaccuracies in UPRO/SPXU mean that they are not the exact opposite of one another (possible)
- IRS decides I did a "Wash Sale", although that seems unlikely since they are not identical funds and I think Wash Sale rules only apply in taxable accounts
- I could have done something more productive with the $20,000 (for example, put it in stocks), so I would say I would only do this with the most conservative part of my portfolio.

What do y'all think?

I've thought about doing this with options, but I worry more about them not moving in step with each other...

Usual disclaimers apply... I am not a lawyer, I am not an accountant, I don't work for the IRS, and if you do this, you do it at your own risk...
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