Lynn O'Shaughnessy

What would happen if you threw a party and nobody came? The federal government could discover how that feels in January. That's the date for the official coming-out party of the Roth 401(k), which represents an intriguing new way to save for retirement.

I can tell you one big reason why millions of Americans won't be participating in the Roth 401(k)'s rollout: They haven't received invitations.

A study conducted by Hewitt Associates, a human resources consulting firm, suggested that just 7 percent of employers definitely plan to offer the Roth 401(k) to their workers in 2006. Many other workplaces remained noncommittal.

Under the circumstances, it's hard for workers to get excited about the new Roth when they can only watch from a distance with a set of binoculars.

A study by the Vanguard Center for Retirement Research, however, makes a compelling case for why employers should get off their rears. It suggests that many types of workers would greatly benefit from investing in a Roth 401(k) - if they only got the chance.

I devoted a column to Roth 401(k)s earlier this year, but the new research convinced me to write about the subject again in hopes that readers will nudge their employers to do the right thing. If you can't remember why a Roth 401(k) can be an invaluable retirement tool, let me recap.

Unlike a regular 401(k), the money diverted into a workplace Roth will be taxed upfront.

But after you bite that bullet, the cash grows tax-free in the account. When you pull money out during retirement, no taxes are owed. In contrast, the cash deposited into a traditional 401(k) isn't initially slammed with taxes. A participant won't pay the tab until he or she starts drawing down the account. At that point, an investor will owe income tax on the withdrawals.

Next year, you'll be able to sink up to $15,000 into either a Roth 401(k) or the traditional kind if your workplace offers both. You could also split the money between the two types of 401(k)s in any way you want as long as you don't exceed the contribution ceiling.

Workers who are 50 or older can sink an additional $5,000 into either of the plans or divide that money between them.

So who can profit from the Roth 401(k)? For starters, it can be a great move for anybody who shares the hoarding habits of the lowly squirrel.

Squirrels spend a lot of their time gathering nuts for the winters, which isn't much different than hard-core savers hoarding cash for their retirement years. The retirees with the most nuts stored up are more likely to get stuck with higher tax bills because they must begin withdrawing a percentage of their retirement assets shortly after reaching the age of 70 1/2.


Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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