Roth 401(k)

With the new Roth 401(k), employees get the combined benefits of a 401(k) and Roth IRA.

Tax-free withdrawals. As with a Roth IRA, withdrawals from a Roth 410(k) are tax free, including earnings on the account, if you take them after more than five years and after you reach age 59�. However, contributions are made with after-tax dollars, so they don't reduce your taxable income as with a traditional 401(k).

Higher contribution limits. Contributions to a Roth IRA are capped at $4,000 (plus a $1,000 catch-up contribution if you're 50 or older). But you can contribute up to $15,500 to Roth 401(k) (plus a $5,000 catch-up contribution if you're 50 or older). Note that any Roth 401(k) payins will count toward the regular 401(k) cap. You won't be able to contribute the maximum to both types of accounts.

No income limitations apply to contributions to Roth 401(k)s, unlike the $160,000 adjusted gross income ceiling for regular Roths. This is a huge benefit for highly paid employees who are shut out of Roth IRAs. Unlike traditional Roths, Roth 401(k) accounts are subject to the minimum payout rules. Distributions will generally have to be made after you reach age 70�.

Contributions to Roth 401(k) plans will have to be segregated from deferrals to regular 401(k)s, along with earnings on each account. Matches of employee Roth 401(k) contributions aren't tax favored. The matches go in a special account and are taxed as income when paid out.

Next: SIMPLE 401(k)