Not since the late 1990s have workers been offered a new type of retirement account, but that's about to change next year with the debut of the Roth 401(k).
As the name implies, this new savings vehicle combines features of the traditional 401(k) and the Roth individual retirement account, which was the last big retirement innovation.
Like the 401(k), workers potentially could set aside up to $15,000 in the account next year, plus another $5,000 if they are 50 or older. That's four times the amount older workers would be able to salt away in an IRA next year.
As with the Roth IRA, money goes into the account after income taxes have been paid. But you won't have to pay any taxes on contributions and earnings when you withdraw them at retirement.
"It's an opportunity to put much more money away and have it grow tax free," said Ed Slott, an IRA expert in Rockville Centre, N.Y.
Still, it's up to employers whether to adopt the Roth 401(k). At this point, many are taking a wait-and-see approach, preferring to learn from others' successes and mistakes and to see whether workers embrace the Roth 401(k), benefits experts said.
Three out of 10 large employers said they would likely offer a Roth 401(k) in January, according to a Hewitt Associates survey of more than 450 companies earlier this year.
About 10 percent of smaller employers are expected to add a Roth 401(k) in the next couple of years, according to Transamerica Retirement Services.
"They don't want to be the first out of the box," said David Wray, president of the ProfitSharing/401(k) Council of America in Chicago.
There are numerous reasons for employers' hesitancy.
The Roth 401(k) was created under the 2001 tax law that's set to expire in 2011. It's unclear what would happen to the accounts if Congress doesn't extend the tax breaks.
"The sunset provision is a bit of a turnoff," said Catherine Collinson, a senior vice president with Transamerica Center for Retirement Studies. Employers also are waiting for final Roth 401(k) rules from the Internal Revenue Service. And adding the plan could be an administrative headache for employers, experts said.
Then there's the hurdle of educating workers.
"It's complicated to explain and 401(k) plans are already confusing," said Robyn Credico, national director of defined contribution consulting with Watson Wyatt Worldwide. "You stand the risk of people not saving at all because it's really confusing."
