One of the new Roth’s significant benefits: When you withdraw money at age 59 1/2 or later, its earnings in interest will be tax free. With a regular 401(k) the interest is taxed.
Other features:
* Investments are made with after-tax dollars.
* Anyone at any income level can invest in the new Roth.
* People who are age 50 or older by the end of 2006 can take advantage of the catch-up provision and contribute up to $20,000.
* Employer matches will still be made with pretax money. But the match money will accumulate in a separate account and be taxed as ordinary income at the time of withdrawal.
* Tax-free withdrawals can’t be made until the account is held for five years. All withdrawals are tax free after the holder stops working or is 59 1/2.
* Money can be left in the new Roth until the investor’s death, when it can be withdrawn tax free by heirs.
A survey by Hewitt Associates shows that 35 percent of companies responding say they are likely to add a Roth 401(k) to their benefits plan. Others say they can’t offer it immediately because it requires a separate accounting system to track the new Roth.
Economists writing in Business Week recommend that younger workers in low tax brackets should consider the new Roth. Their incomes will increase later on, putting them in a higher tax bracket.