The Roth IRA is a convenient way to give yourself access to tax-free money when you retire. Unlike a traditional IRA, where annual contributions are often tax-deductible and earnings are taxed, contributions to a Roth are taxed -- but the earnings are tax-free. If you're a smart investor and manage your account properly, you could reap an enormous windfall.

"The government says pay me now or pay me later," says Bob Corcoran, vice president of college planning at Boston-based Fidelity Investments. "In exchange for not getting a deduction for the Roth, come retirement your income is tax-free. That's extremely attractive. It can lead to a higher income stream in retirement years."

Just about any brokerage firm, bank, credit union, mutual fund company, investment firm and even many insurance companies will help you open a Roth IRA. There are two ways to get a Roth started -- open a new account and fund it with new money or convert assets from a traditional IRA to a Roth IRA.

Remember, $4,000 is the maximum amount the government allows anyone under 50 years old to contribute, annually, to his or her combined IRAs. For individuals 50 or older, the limit has been bumped to $4,500 per year. Couples who file jointly may contribute $4,000 each to separate Roth IRAs unless either is 50 or older. The maximum is $4,500.

Some income limits
As long as you have earned income equal to the amount of your contribution and meet the income restrictions you can open a Roth even if you have a traditional IRA and an employer-sponsored 401(k). The maximum $4,000 contribution is allowed for individuals who file tax returns as single and have an adjusted gross income of less than $95,000 annually, and for couples filing jointly whose AGI is below $150,000. Single filers whose adjusted gross income is $110,000 or above and couples whose joint return is $160,000 or above cannot open a Roth.

If you convert a traditional IRA to a Roth your adjusted gross income must be below $100,000 whether you're filing as an individual or as a couple filing jointly.

Income restrictions are one of the few things going against Roth IRAs, says David Bendix, a certified financial planner at Bendix Financial Group in Garden City, N.Y.

"I'd like to see Congress open the Roth up so you don't see income restrictions. People are trying to take after-tax dollars and sock them away. It's a really powerful tool."

Who should consider opening a Roth IRA? Anyone interested in receiving a stream of tax-free income during their retirement, says Corcoran.

"At Fidelity, we break down the decision process into three questions. Who is eligible based on their AGI and tax-filing status? If you're not eligible, go with a traditional IRA. If you're eligible for a Roth, can you deduct your contribution to a traditional IRA? If the answer is no, then consider a Roth. What do you expect your tax rate to be when you retire? If it's the same or higher then consider a Roth because you'll be converting those assets into income at that time."

Corcoran says Fidelity has an easy-to-use IRA evaluator on its Web site to help investors decide which IRA is right for them.

"What do you expect your tax rate to be when you retire? If it's the same or higher then consider a Roth."

Watch out for taxes in converting
Another key aspect when considering whether to convert a traditional IRA to a Roth is how you'll pay the tax on the earnings from the traditional IRA. The earnings will be taxed as ordinary income. If you need to use the IRA itself to pay the tax, it may not be a smart idea to convert.

People who converted traditional IRAs to Roths in 1998, the first year they were available, were given the option to spread the tax out over four years. That's not an option anymore but there's no rule that says you have to convert your entire traditional IRA at once if you want to convert. You'll have a smaller tax bill if you convert just a quarter or one-half of your traditional IRA each year.

Bendix says the drawback to that is you don't have the full growing power of a Roth going in from day one. He suggests some careful tax planning to see if you have some capital losses that could offset the conversion tax bill.

Despite the Roth benefit of tax-free income, experts say many investors still want the tax break up front.

"They're looking at one side, not that for the next 20 to 30 years they can get tax-free growth -- free money," says Bendix. "They're losing focus. They need an adviser or someone to say this is a good idea."

Good for estate-planning, too
A Roth isn't just a good bet for you -- it's good for your heirs, too. In fact, Corcoran says many investors are using the Roth as an estate-planning tool. If you leave a Roth to your heirs the money continues to grow tax-free. They have to withdraw the money only as quickly as you did. If you didn't withdraw any money, your heirs can continue to let the money grow tax-free for many years to come.