Roth 401(k) Plans -- The Next Big Thing

Prediction time (something I rarely do). Roth 401(k) plans will take off in 2006. They may be a little slow getting out of the gate since a lot of folks are just learning about them and the IRS hasn't provided a ton of guidance. But, I predict Roth 401(k)s will become more popular than traditional 401(k)s. Why? Because they combine all of the great benefits of regular 401(k)s with the non-taxability of the Roth IRA. Below is a table which compares the provisions of the two types of 401(k) offerings.

When we've run the calculations, the Roth beats the traditional over the long haul due to the investment growth never being taxed. That's huge, and it overcomes forgoing the 401(k) deduction today. When might the traditional 401(k) deferral be better? Since there's tax on withdrawals within five years of contribution, if you're going to withdraw right away then the Roth 401(k) may not be best for you. Since our clients are a more wealthy lot, we expect the Roth deferrals will be the last money they ever spend -- if they ever spend need to spend it. That's why we're pushing Roth 401(k)s as great wealth accumulation vehicles.

For more information on Roth 401(k)s read the article by PensionOne Advisors ( http://www.pensionone.com) at: http://www.pensionone.com/insights/bi2005-08.pdf