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Employees will be able to sock money away in the new Roth 401(k) beginning Jan. 1 Date published: 8/20/2005 By CATHY JETT By CATHY JETT Looking for ways to squirrel away money for retirement? A new option will be available beginning Jan. 1, 2006. It's called the Roth 401(k)--or Roth 403(b) if you work for a nonprofit. As the name implies, it's a hybrid of the Roth IRA, which is paid with after-tax dollars and grows tax-free, and the traditional 401(k) or 403(b), which allows you to set aside part of your salary for retirement with an employer match. The new investment vehicle was part of the Economic Growth and Tax Relief Reconciliation Act of 2001. It allows employers to offer the plan as early as the start of next year, although they can wait until the beginning of their next fiscal year. Congress came up with the concept to give people another way to save for retirement, just as it added the Roth IRA after offering the traditional IRA. According to a recent study by Hewitt Associates, a human resources services firm, about a third of the 198 respondents said that they are very or somewhat likely to offer the Roth 401(k) or 403(b) next year, while the rest were fairly evenly split between somewhat unlikely and very unlikely. If you are given this new option, however, it doesn't mean you get to sock away twice as much in your 401(k) plan. The combined limit for the traditional and the new Roth versions will be $15,000 in 2006, up $1,000 for contributions to the traditional 401(k) this year. Workers age 50 and over by the end of 2006 can make an additional catch-up contribution of up to $5,000 to either plan. Still, that's more than you can put into a Roth IRA. Contributions to that next year are limited to $4,000--or $5,000 for those age 50 or over. The Roth 401(k) also can be an option for high-income workers because it doesn't have an income eligibility limit, which the Roth IRA does. It's not clear whether employers will be able to match a percentage of contributions to a Roth 401(k), as they do with a traditional 401(k). The Internal Revenue Service hasn't issued the final regulations about that yet, according to Gloria Wajciechowski, spokeswoman for the IRS office in Richmond.
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