Question:

I'm in my 20s and work for a company that offers both a regular 401(k) and a Roth 401(k). I'm trying to decide which to use. Is there an age when it makes sense, or doesn't, to choose the Roth 401(k)? How do you decide? - R.S., Denver

Answer:

Roth 401(k)s are relatively new and not available in many 401(k) plans yet. But if you have access to one, your employer has given you a great deal.

If you save money in a Roth 401(k) at work, every penny you accumulate will be yours when you retire and start to spend your savings. If you have saved $1 million, you can count on having access to every cent instead of sharing some of it with Uncle Sam. Even if you end up with millions of dollars in that Roth 401(k) by the time you retire, you will not owe any taxes on it.

You do not get the same deal with a regular 401(k).

When you save money in a regular 401(k), or the type of retirement savings plan that has been offered by many employers for years, you receive a tax break the year you contribute, and you escape taxes while saving the money during your working years. But when you retire, and start withdrawing money, the tax benefit ends.

Think of it the same way you think of a paycheck. Most of the money you get with each paycheck, or each withdrawal from a 401(k), is yours, but Uncle Sam takes some.

The only way to keep Uncle Sam from your 401(k) money permanently is to save it in the Roth 401(k) your employer offers.

Ed Slott, a certified public accountant who specializes in retirement savings plans, advises people of all ages and incomes to use the Roth 401(k) at work and a Roth individual retirement account outside work so the government never shows up and takes any of your savings.

His logic is simple: Because the government is facing a large deficit and will have to pay for Social Security and Medicare for 77 million baby boomers in the future, Slott figures that taxes will have to rise in the years ahead. So he said people are wise to insulate themselves from having to pay those higher taxes. The means to do it is to stuff as much money as possible into a Roth 401(k) at work and Roth IRA away from work.

Individuals can save $15,500 in a Roth 401(k) and $5,000 in a Roth IRA this year. There are income limits on Roth IRAs, but anyone - no matter how wealthy - can put as much as $15,500 into a Roth 401(k) in 2008. Those who are 50 or over can save $20,500 in the Roth 401(k).

Some people do not like Roth 401(k)s because they do not give you an immediate tax break for the year when you make a deposit. Regular 401(k) plans do.

Say you are in the 25 percent tax bracket and you decide to save $1,000 in a regular 401(k) this year. Uncle Sam will cut your taxes on that $1,000, so you - in effect - take $750 out of your pocket and use $250 in tax savings to fund your $1,000 contribution to the 401(k). Because a Roth 401(k) gives a tax break when you retire, you do not get that $250 break up-front.

With a Roth 401(k), you would fund the $1,000 out of pocket.

If you need an initial tax break to save for retirement, then use the regular 401(k). But if you do not, Slott said, choose the Roth 401(k).

"It's like buying taxes on sale," he said. It is well worth skipping a $250 tax break on $1,000 this year if you will have thousands of dollars free of taxes when you are 70 or 80.

Of course, if you would like a little tax break now and more to come at 70, you could save at work in both the regular 401(k) and Roth 401(k). Just remember the sum of this year's contributions cannot exceed $15,500 unless you are 50 or older. So you could, for example, put $10,000 this year into a Roth 401(k) and $5,500 into the regular 401(k).

While your money grows year after year, Uncle Sam will not tax you on either portion. Your employer will keep records so that when you retire, the $5,500 portion will be taxed and the $10,000 portion will not.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune. Contact her at gmarksjarvis@tribune.com.