Lately, people are asking me more fre-quently about the new Roth 401(k). I do not know if this is due to the shakey markets, Roth IRA income limitations, increased interest in a tax saving opportunity
or if they just receive an announcement from an employer and that peaks their interest.

Though many believe the Roth version of their com-pany’s 401(k) is new, actually this was passed in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and became effective January 1, 2006. However, you are not able to elect this option unless your company’s 401(k) plan document is amended or your company begins a plan including a Roth component. And these two scenarios have begun to pick up steam.

Ok—say your company’s 401(k) plan offers the Roth choice. Should you take the leap? Well, maybe. Let’s frst take a look at how this works. As the name suggests, a Roth 401(k) has some of the same characteristics as a Roth IRA. Contributions are made with after-tax dollars. While you do not get a deduction up front, your growth is tax-free. Withdrawals taken during retirement are also tax-free provided you are at least 59 ½ and your initial contribution was a least fve years before your frst with-drawal. Contribution limits are subject to the same level as the regular 401(k)s- $15,500 for 2008, or $20,500 for those age 50 and over. If you decide to split your contri-bution between the regular and Roth options in your plan, the total cannot exceed the limit .

The Roth 401(k) has been especially attractive to high-income earners who are ineligible for a Roth IRA because their Modifed Adjusted Gross Income (MAGI) exceeds the $169,000 (joint) or $116,000 (single) limits for 2008. Even in 2010 when the income limit is lifted, a Roth 401(k) will allow for a much higher contribution amount than the $5,000 (+50 at $6,000) Roth IRA limits.

Let me suggest these considerations when deciding whether to make your 401(k) contributions to a Roth option:

• You do not need the taxable income deduction today
• You have suffcient time until retirement for the Roth to be the better tax strategy for you
• You believe your tax bracket will be higher at retirement (some believe even if their taxable income is not higher, tax brackets will be)
• You are ineligible to contribute to a Roth IRA because of income limits
• You wish to contribute more than the individual Roth lim-its that offers tax-free distributions
• You plan to begin retirement distributions in fve years or more and will be 59 ½ or older at that time
• You want to diversify your retirement money ‘pots’ for optimal tax strategies during retirement

The Roth 401(k) can be a great way to save for retirement. Be cautious, but do not let this weak market deter your dream retirement goal. If your ‘post-working year’s/ ‘all-fun all-day years’ are eight to 10 or more years away, consider if this mar-ket offers you sale prices? Many times you have considered yourself a savvy shopper buying on sale, does this market offer a savvy buying opportunity for you? Evaluate if the Roth option makes you an even more savvy shopper!

Erin Carper, CFP® is the owner of Carper Wealth Management. Call 770.781.2502 or e-mail erin@carperwealthmanagement.com, www.carperwealthmanagement.com Erin is an Ameritas Investment Corp. (AIC) Investment Advi-sor Representative. Securities and fnancial planning offered through AIC, Member FINRA/SIPC. AIC and Carper Wealth Management are not affliated. The above information is
intended to provide general information. It is not intended as, nor may be considered, as tax or other legal advice for you. Please consult the appropriate professional advisor for your specifc circumstances.