Beat the Drums if You Want a Roth

But regardless of the policy issues, the advent of Roth 401(k)s will add yet another complex choice for many workers.

"I hope it doesn't result in lower 401(k) plan enrollments," said Michael Weddell, a retirement consultant in the suburban Detroit office of Watson Wyatt Worldwide. Weddell noted that research has shown that when an employer offers more than 30 or 40 investment choices in its 401(k) plan, employee participation rates go down "because there's kind of a paralysis by analysis" as workers are unable to decide where to put their money.

The Roth option is most likely to appeal to "more savvy investors" and "anyone who believes taxes are likely to be higher in the future," Hewitt's Lucas said.

In fact, she said, "we are hearing from individuals who are not sure [which way taxes will go] but want to diversify in the event taxes may be higher."

Along those lines, Weddell also said that tax-free withdrawals will not be allowed until five years after the first contribution, "so even if you like pretax better," you might put a little on the Roth side just to get the five-year clock started in case you later want to put more into the Roth account.

Most analysts figure that the economic value of the immediate savings from pretax deductions is the same as that of the future savings from the tax-exemption -- if tax rates remain the same.

So the choice is "a bet on whether your marginal tax rate will be higher or lower" in retirement, Weddell said.

The assumption underlying traditional IRAs and 401(k)s was that income usually goes down in retirement so your tax rate should, too. If that happens, a worker is better off taking the upfront tax benefit and paying later.

It's certainly true that tax rates overall have declined in recent years. A worker entering the labor force in the 1960s and retiring in, say, 2002, would have been well advised to take the upfront benefit.

But will that continue? The large federal budget deficits and growing public benefit programs, such as Medicare and Medicaid, need to be cut or paid for, with the latter choice suggesting a likely tax increase.

There are also twists and turns that need to be ironed out. The Internal Revenue Service issued proposed regulations this winter, but they are very broad and experts view them more as a starting point for discussions than the final word.

This means that workers who really want one of the new Roth accounts should start making their wishes known to their employers. The employers not only have to decide if they are willing to offer the accounts, they also have to make sure all recordkeepers, investment managers and others involved are up to speed.

Now is not too soon to start.