The new Roth 401(k) plan combines features of Roth IRAs as discussed above with the features of a regular 401(k) account. Employees can contribute after-tax dollars to their retirement funds from salary in place of, or as part of, their plan contributions. The after-tax contribution can later be withdrawn tax-free.

The contribution limit is the same as the traditional 401(k) limit, which is substantially higher than the Roth IRA limit. Also, participants in 401(k) plans often are excluded from also making Roth IRA contributions.

When an employee leaves his company, he can roll the Roth 401(k) account into a Roth IRA, continuing the tax deferral and avoiding the minimum required distributions of traditional IRAs that begin at age 70½.

To decide if the Roth 401(k) is better for you, you need to decide that forgoing the tax savings now (and thus having less take-home pay) is better than paying taxes on the traditional 401(k) distributions at retirement. If you believe that future tax rates will be higher for you in retirement, then the case becomes more compelling. Of course, if the plan allows, you can hedge the decision by participating in both Roth and traditional 401(k) accounts. Note that the new plan will only be in effect until 2011.