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You have probably heard about the generous benefit of investing for retirement through an individual retirement account or IRA – investors can invest their money and watch it grow tax-free. However, you may not be aware that there are actually several types of IRAs, two of which we’ll focus on here as well as why there may be no better time to convert to one style in particular.

The two types of IRAs we’ll explore are traditional and Roth IRAs. There are several differences between a traditional IRA and a Roth IRA. However, the one big difference that makes moving at least some of your investment dollars to a Roth worth considering is when you pay taxes on your money. When you invest in a Roth IRA, your investments grow tax-free. In a traditional IRA, you invest pre-tax dollars, but taxes will be due when the money is withdrawn.

When you invest in a Roth IRA, you have already paid taxes on your money, so you will not owe any additional taxes when you withdraw the money, allowing you to reap the full reward, including the earnings you accumulate over time. In a traditional IRA, you invest money prior to incurring any taxes on it. This lowers your taxable income while you’re working and enables you to put more of your money to work. However, taxes are due on the total amount when it is withdrawn, including your initial contributions and the earnings you accrue. So, you either pay income taxes now, or pay taxes on all the money in the future.

In addition to the tax benefits, there are even more benefits to investing in a Roth IRA. If an emergency arises and you need to access some of your money, you can withdraw your contributions without penalty. Remember, the government has already taxed your income, but not your earnings, so unless you are older than 59 ½, this applies to contributions only. There are also no mandatory withdrawal minimums. In a traditional IRA, you must begin taking distributions when you reach age 70 ½, but you can let your investments grow in a Roth for as long as you like.

While this all sounds ideal, there are a few drawbacks of which you must be aware. You didn’t really think Uncle Sam was going to give you everything with no strings attached, did you? Individuals under the age of 50 can contribute a maximum of $5,000 to a Roth IRA. Those over 50 can contribute $6,000. Additionally, individuals with an adjusted gross income of $120,000 or above are not eligible to contribute to a Roth IRA; for joint filers, the cap increases to $177,000.

However, for 2010, conversion rules just improved drastically. In prior years, individuals earning $100,000 or more were unable to convert to a Roth IRA. In 2010, there is no income restriction at all, meaning anybody can convert from a traditional IRA to a Roth. Additionally, individuals may choose to spread their income tax burden from the conversion to 2011 and 2012. However, many anticipate taxes to increase after 2010, so it may be beneficial to take the total tax hit in 2010.

You need to examine your specific situation closely before deciding how to invest your retirement savings. Nevertheless, factoring in the current economic environment and what we expect in the future, combined with the recent easing of restrictions, most individuals will find it difficult to unearth a better option than a Roth IRA.