As everone  knows, if adjusted gross income (AGI) exceeds $100,000 (not counting the IRA Conversion), the taxpayer(s) are not eligible to convert to a Roth IRA. What some taxpayers may overlook is that certain credits are phased out as AGI approaches the $100,000 conversion cutoff. So, in addition to paying the tax on the conversion, the conversion cost may go higher as the following credits, exclusions, or deductions are cutback or lost:

Adoption credit
Child credit
Hope and Lifetime Learning credits
Exclusion of social security benefits
Series EE bond exclusion for education
Employer-provided adloption assistance exclusion
Education loan interest deduction
Education IRA 

Solutions

There is a new provision in the Roth IRA rules that allows taxpayers to reverse their conversions and revert back to the old deductible IRA account, thereby avoiding any adverse tax consequences. It¯s not for everyone, especially for taxpayers who went through hoops to get their AGI below the $100,000 cutoff. As with a lot of Roth IRA conversion situations, consultation with a tax advisor might be a prudent idea. Beware: the election to revert back must be done by the tax filing deadline.

Another solution is to convert to a Roth IRA in smaller chunks. There is nothing in the tax rules that requires taxpayers to convert all of their IRA accounts at one time!! What taxpayers may have been confused about is the four-year spread rule which implied that conversion was an "all-or-nothing" proposition. It is perfectly legal to convert 1/4, 1/2, 1/3, 1/10th, or any amount of a traditional account.