For others, the Roth can represent a useful planning tool.

For some, "marginal tax brackets will probably fluctuate during retirement years,” says Dressel. During those higher marginal bracket retirement years, being able to draw some money out of a plan on a tax-free basis will be attractive. "During years with lower tax rates, [however] a participant may choose to withdraw just from their qualified [traditional 401(k)] accounts."  By having funds invested in both a traditional and a Roth 401(k) account, a future retiree gains what could be useful tax planning capabilities in retirement.

Unlike Roth IRAs, Roth 401(k) plans are not subject to the income ceilings that keep many wage earners, especially dual-income households, from contributing to them. But they are subject to the same mandatory withdrawals rules — beginning at age 70 ½ — that regular 401(k)s are subject to.

However, there is a way around those mandatory withdrawals.

Roth 401(k)s may be rolled over into Roth IRAs — without regard to any income restrictions — when employees change jobs or retire, in the same way traditional 401(k) accounts are rolled over into IRAs. But rolling over a Roth 401(k) into a Roth IRA gains access to one of the Roth IRA’s most compelling features: No minimum distribution requirements. This also creates a way to pass assets along tax-free to one’s children if withdrawals are never made or account’s balances remain at death.

Regardless of the flavor — Roth or traditional — contributions to 401(k)s are still limited to $15,500 for those under the age of 50 in 2007 and 2008, and to $20,500 for those who are 50 or older. If an employer offers a Roth, the employees may contribute all, none or a portion to it and the rest to a traditional 401(k) account — it is not an either/or decision.

In fact, where an employer matches employee 401(k) contributions, even if that employee elects to have all contributions made to their Roth 401(k), they will still end up with a traditional version as well. This is because employer contributions can only be made on a pretax basis, and therefore to traditional 401(k) accounts even if they are being matched to an employee’s Roth 401(k) contributions.

But for those just starting out in their careers, or anyone experiencing a year in a lower tax bracket than they expect to be in at retirement — or simply any taxpaying employee looking to hedge their bets against an uncertain tax bracket future — participating in a Roth plan offers an opportunity and the flexibility to manage the tax hit they will experience in retirement. 

To help understand exactly how the plan features differ, the IRS provides an easy reference chart on its Web site comparing the Roth 401(k), to the Roth IRA and a Traditional 401(k).

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