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For now, the IRA door is wide open. Under rules that went into effect at the start of 2010, you’re welcome to convert your traditional IRA to a Roth IRA. No conditions, no limitations. You’re eligible.

Unless there is something very unusual about your circumstances, converting to a Roth is a clear winner. It’s a sorry fact, but the long-term bias in the U.S. political system is toward higher tax rates. If your tax rate is going up (which is very likely), you’ll come out way ahead by converting to a Roth. Paying tax now (at today’s lower rates) on the fair market value of the investments you move from a traditional IRA to a Roth will leave you with more after-tax dollars.

But there’s a surprise you are going to like even more than future tax savings. There is a way to take a big slice off the tax cost of a Roth conversion – about one-third or so – by using what we call the Open Opportunity IRA structure. And doing so will open up investment alternatives that can mean fatter returns… much fatter.

Investment freedom with an Open Opportunity IRA

An Open Opportunity IRA gives you the maximum in investment freedom and flexibility. With the Open Opportunity structure, your IRA owns just one asset – a limited liability company that you manage. You’re not limited to stocks and bonds, or to CDs, or to a list of mutual funds. Your hands aren’t tied by the bank, brokerage firm, or mutual fund family that sponsors your IRA. Because you personally manage your IRA’s LLC, you are free to act whenever you see a rich opportunity.

Here are some of the things you can do when your IRA adopts the Open Opportunity structure.

• Own apartments that you manage. Every month, you’d collect the rents and deposit the checks into your IRA’s bank account.
• Invest in tax liens. Your IRA could be earning 16%, 18%, 23% per year or more. Do your homework and you could earn a great return, with minimal risk. It’s even more fun when you collect the money without having to pay taxes.
• Own farmland in New Zealand. That’s an investment that will always be far removed from the troubles of the U.S. economy.
• Lend on small mortgages and deeds of trust – another secure way to capture high yields.
• Invest in a retail, wholesale, or service business that you work for. You’d be minding the store while your IRA collects the revenue and feeds the money into its tax-deferral machinery.
• Lease equipment. If you have knowledge, skill, and experience about any type of equipment that people want to rent, put your know-how to work for your IRA.
• Buy houses at foreclosure sales. It could even be houses that you refurbish to add value for your IRA.
• Buy stock in private companies – including a company you run. (That’s something your IRA’s stockbroker doesn’t want to talk about.)
• Earn royalties on copyrights, trademarks, patents, and web addresses. No current tax when the money goes into your IRA.
• Buy American Eagle gold coins for your IRA and store them anywhere you like – under your mattress, in a vault in Europe – anywhere.

Those are only some of the examples. You can probably think of other ways to boost your IRA returns with the Open Opportunity structure that puts you in charge. They all come down to one thing: the structure lets you pour your energy and expertise into your IRA to earn better, faster returns.

Investment freedom is the biggest attraction of an Open Opportunity IRA. But there’s a bonus. The Open Opportunity structure can save you a bundle on a Roth conversion. The basic strategy is simple: design the LLC so that the fair market value of the LLC shares you move into your Roth IRA is less than the fair market value of the underlying investments (what the LLC owns). Achieving such a valuation discount of 30% to 35% isn’t tricky. And it means cutting the tax cost of a Roth conversion by the same amount – 30% to 35%.

The high likelihood of higher tax rates in the future makes a Roth conversion a sensible move to consider. The tax savings available with the Open Opportunity structure shouts that it’s absolutely the right move for many. And the Open Opportunity structure gives you investment freedom that few investors know is possible.

But your IRA clock is ticking. It’s already October, and higher tax rates starting in 2011 are already on the books. And you never know when Congress might change the rules to eliminate the big tax savings on a Roth conversion that are possible now with an Open Opportunity IRA.