Retirement Account Gives Workers New Savings Options

Employees next year could be offered the opportunity to stash away some of their retirement savings in a new type of account that may reduce their taxes in the long-run.

The new Roth 401(k) (search) requires that workers pay tax on earnings before setting aside the money for retirement. In exchange, the money grows and can be withdrawn tax-free. It's modeled on the Roth individual retirement account, which works the same way.

It's the opposite of the 401(k) accounts currently used. Those let employees save and invest some of their salary before paying tax, but taxes come due when the money is withdrawn in retirement.

A few companies will be prepared to offer the new Roth 401(k) accounts to their workers when the law makes them available on Jan. 1. More plan to roll the accounts out sometime during 2006. The Internal Revenue Service (search) still has some regulations to issue, and companies need to work on account administration.

"Getting the whole system up and running requires some time," said Anne Waidmann, a manager in the Washington, D.C., office of PricewaterhouseCoopers who tracks employee benefit and compensation issues. read on