The newest retirement vehicle is a Roth 401k.  Like the Roth IRA, you contribute after tax dollars up to $15.5k/year into a retirement account and it comes out tax free when you retire.  Thus you are able to actually save more than in a regular 401k, depending on your tax bracket.  Not many companies offer this as a choice yet, but I’m sure it will gain in popularity in the future.  However, is it the best deal?

I think the answer is it depends.  This in depth article writes about the multiple different scenarios people need to consider when they are choosing between a Roth 401k and regular 401k.  So what are things to consider, summarized because it’s a dense article

• What will you tax bracket be when you retire?  Higher or lower?
• Are you at your peak earning years?
• Do you live in a high tax state (CA given as an example) but are planning on moving perhaps to somewhere without state income taxes (FL for example)?
• Do you assume Congress will never change the rules for taxing Roth accounts?
• Will tax rates go up or might we move to a flat tax system or a fair tax system?

These are some of the questions addressed in the article. I think it an excellent read for anyone who has the opportunity to invest in a Roth 401k.  Before you jump in check it out and make sure it makes sense. Run the calculations.

Remember incomes can flucatate in a lifetime. You could be laid off and unemployed for 6 months or a year. At that time it might make sense to “rollover” your 401k to a Roth IRA when you have no other income and are living on savings.

Also moving states from a high state income tax state like CA to WA might work in your favor.  Also in retirement depending on how much you have saved it could mean drawing on one source one year and a different source the next year.

But before you leap into any decision consult a tax professional.