Should I open a Roth 401k to shelter more of my retirement?

[roth401k]

I currently max out my 401(k), but I make too much money to be eligible for a Roth IRA. I've read, however, that starting this year there's a Roth 401(k). I like the idea of doing the Roth because if tax rates go up after I retire, I can choose to pull money out of my Roth instead of my regular 401(k) and save myself some money on taxes. What do you think -- should I do the Roth?

-- Mark Newberry, Austin, Texas

First, let me say that I like the way you think. Most people are familiar with the idea of diversifying their investment portfolios by divvying up their money among different asset classes -- stocks, bonds and cash -- and even spreading around a bit more to include large and small stocks, growth and value, taxable and tax-exempt bonds and even high-yield corporates. The idea is to hedge a bit so your portfolio keeps chugging along even if one type of investment gets clobbered.

But many investors don't realize that the notion of hedging your exposure applies to taxes as well. If you have your entire retirement portfolio in a 401(k) or IRA rollover, then all your withdrawals (except for any after-tax contributions) are taxed at ordinary income rates, which these days are as high as 35 percent.

But if you have part of your nest egg in a Roth IRA or Roth 401(k), you don't get..............


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