Is your Company Really Looking Out for You?

So you know how much I love Roth IRAs, right? Follow a few simple rules and when you retire you won't owe a penny in tax. That's a lot better than withdrawals from your 401(k), which are gonna get taxed at your regular income tax rate. Yes, I realize the 401(k) comes with a nice tax break on the contributions you are making today, but since you are so B right now, I'm guessing that tax break isn't worth too much to you, cause you're probably in a pretty low tax bracket.

But if we jump forward 30 or 40 years when you are ready to start pulling your money out of the 401(k) there's a great chance you're going to be in a higher tax bracket, and 100 percent of the money you withdraw will be smacked with income tax.

Now here's the totally great new twist in 401(k) investing that no one is paying attention to: Starting next January your boss has the option of allowing you to invest in a traditional 401(k) or a new Roth 401(k). With the Roth 401(k) you will get no upfront tax break; all your contributions are made on an after-tax basis. But just like the traditional 401(k) your money will grow tax-deferred meaning there's no annual tax bill while the money is invested.

And the super huge payoff: when you make withdrawals from a Roth 401(k) you will owe no tax. Zip. Zero. None. I think that is a huge opportunity for the YF&B.

But here's the problem: most companies aren't rushing to offer a Roth 401(k). Hewitt, a big employee benefits consulting firm recently polled a bunch of corporate clients and found that just one-third expect to roll out a Roth 401(k) in 2006.

I think that's ridiculous. If I were YF&B I would be bugging my HR department, or employee benefits folks to find out when they intend to offer a Roth 401(k). Notice I didn't say "if." I said "when."

Look, a 401(k) is operated for the sole benefit of its participants. That's you. So you and your YF&B colleagues need to start applying some pressure to let the corporate poohbahs know that a Roth 401(k) option would definitely be to your benefit. Don't be shy. Hell, I wouldn't be surprised if they are completelty out of the loop on this; it just doesn't seem to be on too many radar screens at the moment.

It's up to you to make them aware that you want a Roth 401(k) option, and you want it sooner, not later.

Now a few basics on how this works: In 2006 you will be allowed to invest a maximum of $15,000 in your 401(k), whether it be a traditional 401(k) or a Roth 401(k). And the same matching rules apply; if your company kicks in for the traditional, it will also contribute to your Roth.

Let me know what you hear back from your benefits dept.

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