Since Roth IRA's arrived on the scene in 1997, those saving for retirement have had the option of a regular IRA, with tax-deductible contributions, or a Roth IRA with no tax deduction but tax free withdrawals.

Sandy Botkin, a well known CPA and former IRS auditor, has "run the numbers" and claims that the Roth IRA comes out ahead of the regular IRA…every time. Meaning, it's better to gain tax-free withdrawals than to take a tax deduction upfront.

Starting this year, Congress introduced the Roth 401(K) and 403(b), which offer the same advantages as a Roth IRA….no taxes on qualified withdrawals. According to an article in Entrepreneur magazine…

If your company offers the new option, you'll be able to waive immediate tax deductions for retirement contributions. In place of the immediate tax deductions (which you've given up), you'll get the right to tax-free growth and withdrawals later. Unless you're likely to be in a significantly lower tax bracket in retirement than you're in now, it's a good option to consider.

But be aware that taking the Roth option will decrease your take-home pay in the short term, since your 401(K) contribution will no longer be pretax. Still, as long as you wait until you're at least 59 and a half years old and you've had the account five years or more before making withdrawals, you'll make it up later. (Since you've already paid taxes on your contribution dollars, you can take what you've contributed at any time with no tax or penalty. Just remember that removing anything limits your growth potential.)

Tax-free gains aren't the only advantage of a Roth IRA. Unlike traditional IRAs, there is no mandatory withdrawal age. That give you more flexibility in retirement an can help with estate planning, since you aren't forced to draw down the assets as quickly.

The new option shuld be especially helpful for those with incomes too high to qualify for Roth IRA's. Single filers who make more than $110,000 and couples with a taxable income above $160,000 have been phased out of eligibility for Roth IRA's in recent years. But now, because it's in a 401(K) and not an IRA, they can get the same benefits at significantly higher incomes. They can contribute more, too. An IRA is limited to $4,000 a year for most people. A 401(K) on the other hand, caps out at $15,000 annually for most of us. The limits are slightly higher for savers over 50.

The law allowing Roth 401(K)s expires in 2011, but it will most likely be extended by Congress. So the question now is whether your company should offer the plan."

So, to re-cap, the benefits of a Roth 401(K)/403(b) are…

• No mandatory withdrawal age.
• Tax free withdrawals
• Roth 401(K)'s are available to a much wider group of people…there are no income phaseouts, as with the Roth IRA.
• Roth 401(K)'s have larger contribution limits. The maximum contribution to a Roth 401(K) is $15,000 (or $20,000 if you are 50 or older) per year. Compare this to the small $4,000 annual contribution limit for Roth IRA's.