When I posted recently on how to choose whether to fund your 401(k), Roth, or traditional IRA, I forgot to mention another category:  the Roth 401(k).  The Roth 401(k) rocks.  Like a Roth IRA, you put money in post-tax but then (in retirement) you take out the funds (plus appreciation!) without tax.  Unlike a Roth IRA, there is no income limit to be eligible to contribute.  For a Roth IRA, contribution eligibility phaseouts begin (for 2009) at $105k for singles and $166k for married folk.  Only about 20% of employers’ 401(k) plans offer the Roth option, but the percentage is growing.

If your employer offers a both a 401(k) and a Roth 401(k) and matches both, you might consider dividing your contribution equally between the two, to hedge against future changes in your tax rate.  Your tax rate might change if you make a lot more (or less) money or because Uncle Sam decides to change the rules.  Either way, it’s a good idea not to have all your eggs in one basket. Continue Reading »