The bill containing $70 billion in tax cuts signed by President Bush on May 17 will be "a nice investment vehicle" for Americans with sizeable individual retirement accounts, according to John Barrie, an attorney specializing in federal and state taxes at law firm Bryan Cave's Washington and New York offices.

The plan, effective in 2010, will eliminate the $100,000 adjusted gross income cap on conversions from traditional IRAs to Roth IRAs.

The benefit of a Roth IRA is that distributions are not taxed (unlike a normal IRA), allowing the investments inside to grow tax-free. However, those converting from a traditional IRA to a Roth must pay taxes on the amount invested-contributions to traditional IRAs are made from pre-tax income; those made to Roth IRAs are made from after-tax income. The Bush bill offers relief by giving taxpayers who convert the option of paying out the taxes over two years: half in 2011 and the remainder in 2012.

"The conversion is treated as a taxable distribution," Barrie said. "That is why it's treated as a revenue raiser in the budget impact of the provision in the act. In later years, it will be a revenue loser." After 2014 the fact that people can make withdrawals tax-free is expected to begin eroding government revenues.

"Taxpayers would have to make at least $100,000 a year to see a tax benefit," said Larry Richman, chair of Neal, Gerber and Eisenberg's Private Wealth Management Practice Group. "Approximately 99.1 percent of the benefit would go to the top 20 percent income group," he added.

The bill also benefits individuals subject to estate taxes because it allows them to deduct the income taxes paid on IRAs. "Currently, the full value of the IRA is included in one's estate without income tax reductions," Richman said.

Investors will benefit from the bill's two-year extension of the current 15 percent tax rate on capital gains and qualified dividends. It also grants some temporary relief from the Alternative Minimum Tax.

Another provision closes the "kiddie tax" loophole. The tax refers to the imposition of the parents' tax rate on a child's unearned or investment income to discourage parents from funneling assets to their children as a way to lower their own income taxes. The new legislation extended the applicable age range upward by four years-birth to 18 years-a change that Joseph Gulant, partner and Business Tax Practice Group Leader at Blank Rome believes reflects the fact that children are leaving the nest later in life.

"The whole idea is that you can't use kids as a separate taxpayer. You have to use the parents' rate," Gulant said. "Previous legislation cut out a large set of abusive circumstances, but not totally. This legislation completely closes the gap."

While the measure may effectively close the loophole, its overall benefit to the economy may not be as constructive as it seems. "It's not much of a revenue raiser," Gulant said. "It's a very small income offset. The reason that they can go after this is because there's no obvious constituency that's going to fight about this. It's an obvious loophole, it's widely used, everyone knows about it, and it's been in the press so it gives the appearance of doing something without really having an impact."

But other provisions of the bill-most notably the extension of low rates for capital gains and qualified dividends-are expected to boost the economy, especially via its effect on the stock market. "It will continue the investment in equities as long as the 15 percent rate stays in effect," Barrie said. "This bill is biased in equities, and as long as the investments are made in the U.S., the bill should promote economic growth."