For years, many investors have been locked out of one of the best opportunities to save for retirement. Come January, though, everyone will have access to this investment vehicle and the huge tax savings it has offered to some retirement savers for over a decade.

It's Roth time
This month's issue of the Fool's Rule Your Retirement newsletter comes out this afternoon at 4 p.m. ET, and in it, you'll find cause to celebrate. As Foolish expert Robert Brokamp explains to subscribers in the latest issue, a change in the tax law will allow everyone to gain access to one of the most powerful retirement planning tools available: the Roth IRA.

By way of back story, the Roth IRA has been around for over 10 years now. Billed as an alternative to traditional IRAs that were first rolled out back in the 1970s, the Roth gives you something that nearly no other investment vehicle offers: potentially unlimited tax-free growth.

The implications of tax-free treatment are enormous. Retirement accounts are often one of the largest assets you'll accumulate over your lifetime. And especially with stocks that appreciate steadily over decades, the amount of savings can be enormous. Just consider what you could have saved in taxes owning these stocks in a Roth IRA if one had been available back in 1979 versus a traditional IRA:

Stock

$2,000 Investment in 1979 Is Now Worth

Maximum Tax Savings at Current Tax Rates

ExxonMobil (NYSE:XOM)

$162,989

$57,046

Procter & Gamble (NYSE:PG)

$126,380

$44,233

IBM (NYSE:IBM)

$33,171

$11,610

McDonald's (NYSE:MCD)

$181,159

$63,406

Boeing (NYSE:BA)

$48,233

$16,882

Caterpillar (NYSE:CAT)

$33,112

$11,589

Hewlett-Packard (NYSE:HPQ)

$92,415

$32,345

Source: Yahoo! Finance. Tax savings assumes withdrawing full amount from traditional IRA for taxpayer in the 35% income tax bracket.

The tax-free treatment of a Roth comes at a price, though: You won't get the immediate tax deduction that you're used to seeing when you make a traditional IRA contribution. Yet as you can tell from the table above, giving up a small tax break now can save you tens or even hundreds of thousands of dollars later on.

No holds barred
The problem is that many people haven't been able to get money into a Roth IRA. You can only make contributions to a Roth IRA if your income is below certain limits. An alternative to making direct contributions is to convert an existing traditional IRA into a Roth, but in the past, even stricter income limits have precluded many investors from taking advantage of Roth conversions.

But as you'll read in Rule Your Retirement, all that will change on Jan. 1, when the income restrictions on Roth conversions go away. Suddenly, anyone will be able to convert their traditional IRA to a Roth. And in fact, as you'll see in the article, there's a special tax incentive for those converting in 2010.

Is it worth it?
Whether converting makes sense depends on a number of factors, including the following:

  • Your tax rate now. If you're in a high tax bracket now, the tax cost of converting will be high. It might be smarter to stick with a traditional IRA and pay taxes during retirement, when your income may be lower.
  • What you expect your tax rate to be in the future. On the other hand, many expect tax rates to rise in the future. So even if you're paying a healthy amount of tax today, it still might be worth it to convert rather than risk paying even more during your retirement years.
  • How long you expect to keep money in the account. The longer you have before you retire, the longer you get to enjoy the tax-free treatment a Roth offers.
  • Whether you have money to pay your tax. Converting requires you to include the full converted amount in your taxable income, which can create a huge tax bill. Having extra money outside your IRA to pay the resulting taxes is essential to making the deal work.

Robert's article goes into many more details, including the mechanics of when and how you should go about converting your IRA, the tax implications of converting, and dealing with special issues like past post-tax contributions to your traditional IRA. Before you decide on a Roth conversion, a close look at the article will help you weigh all the pros and cons.

If you've spent years being locked out of Roths, you owe it to yourself to look into whether a Roth conversion makes sense for you. The right move could save you thousands in taxes for years to come.