The week between Christmas and New Year's is usually a quiet one. But before you go to your New Year's party, you'll want to take a look at a use-it-or-lose-it move that could save you big money on your tax bill for years or even decades to come. And with one particular technique, if you don't take advantage of the opportunity by Monday, you may lose it forever.

Lock in low rates for retirement and beyond
The thing that you need to consider in the next four days is whether converting retirement assets you hold in traditional IRAs or 401(k) plans to Roth IRAs makes sense for you. Before getting to the factors you need to consider in making that choice, let's first take a step back to explain the purpose that traditional and Roth retirement accounts play in retirement planning.

Thanks to tax-favored retirement accounts, taxes and retirement planning are inexorably linked. IRAs let you save for retirement and get a current tax break, and with 401(k) plans at work, many workers benefit not only through their own savings but also from the extra money that some employers put toward their employees' retirement through employer matching or profit-sharing contributions.

But Roth IRAs offer something different: tax-free growth and distributions throughout your lifetime. And although high-income taxpayers aren't allowed to contribute directly to a Roth, they can convert existing traditional retirement assets to Roths without any income limit. Getting money into a Roth right now can be worth even more than a traditional IRA or 401(k) in the long run, especially if you're in a lower tax bracket now than you expect to be in when you retire.

The fiscal cliff and Roth conversions
That fact is where the fiscal cliff comes into play. For wealthy taxpayers, current maximum rates of 35% could revert to old rates as high as 39.6%. Moreover, with an additional 3.8% Medicare surcharge tax taking effect on Jan. 1, many investors are doing everything they can to front-load income into 2012.

A Roth conversion is the ultimate tax control mechanism, because it lets you control the timing of when you pay taxes on your retirement assets. If you convert now, you'll boost your 2012 taxable income and have to pay tax on that income come April. But no matter what happens with the fiscal cliff, you won't have to worry about paying tax ever again on that money.

Moreover, even if something unexpected happens and tax rates end up not rising in 2013, you have an escape valve. Through what's known as the recharacterization provisions of Roth conversions, you can basically undo your conversion at any time between now and the extended deadline of your tax return for that year. That means that you can wait as long as Oct. 15 to see if Congress and the President get their acts together and keep taxes low, and if it ends up making sense to wait rather than lock in 2012 rates, you can get a valuable do-over.

The smart recharacterization
In fact, recharacterization rules open up some interesting opportunities, because as long as you put assets into separate accounts, you can pick and choose which ones you want to recharacterize. So consider moves like these:

  • If you're a balanced investor, put half your money into a converted Roth IRA and buy PIMCO Total Return ETF (NYSEMKT:BOND) or another bond fund, and the other half into a second IRA owning Vanguard Total Stock Market ETF (NYSEMKT:VTI) or a similar stock fund. If both do well, you can keep both; but if one or both tank, then you can recharacterize the losing investment and save on taxes.
  • For sector investors, the potential is even greater. Separate accounts with gold and silver bullion-holding fund Central Fund of Canada (NYSEMKT:CEF), mortgage-REIT-owning iShares FTSE NAREIT Mortgage ETF (NYSEMKT:REM), and the energy-focused First Trust ISE-Revere Natural Gas ETF (NYSEMKT:FCG) could give you widely disparate results, letting you cherry-pick winners and get a do-over on losers.

Don't wait
Regardless of when or if the fiscal cliff gets resolved, one thing is certain: After Dec. 31, you'll lose your chance to do a Roth conversion for 2012. So don't wait; take a close look at whether making a move by Monday will save you a bundle in taxes before it's too late.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.