There is a new type of retirement account employers may begin offering in 2006—the Roth 401(k). The account combines features of Roth IRAs with features of 401(k) plans. Employers can offer the new accounts as an option to their regular 401(k).

Contributions to a Roth 401(k) are made with after-tax dollars, so initially they won’t reduce a worker’s tax bill. However, the money will grow tax-free, and all withdrawals after age 59½ will be tax-free. In these respects, they are like self-directed Roth IRAs. In a regular 401(k) plan, contributions are made with before-tax dollars. The money is not taxed while it remains in the account, but every dollar taken out is taxed as ordinary income. A regular 401(k) plan gives you a tax break on the front end; the Roth 401(k) gives it to you on the back end.

Employees will be able to contribute to one or both accounts, but they can’t switch money from one plan to the other after it goes in. Nor can they double their contribution by having both types of 401(k) accounts. The same contribution limit will apply to either account, or both combined. If an employer provides a matching contribution, the match must be put into a regular 401(k) account, subject to the regular 401(k) rules, even if the employee is directing all of his or her contributions into a Roth 401(k).

The most you can put into a Roth IRA is $4,000 (or $5,000 if you are 50 or older). The most you can put into a Roth 401(k) is $15,000 (or $20,000 if you are 50 or older), the same contribution limit that will apply to regular 401(k) plans in 2006. If you put money into a Roth 401(k) and a regular 401(k), your total allowed contribution to both accounts combined is $15,000.

Education and nonprofit employers that offer 403(b) plans will also be able to add Roth accounts. However, the Roth option will not be permitted with 457 plans, offered by government employers.