Roth 401K?

[Hedy]

I'm 23, and have a Roth IRA (maxed it out for 07) and a 401K. My company is offering a ROTH 401K. I think I'm fine with the combo of my pre-tax and after tax retirement money...is there any reason I should contribute to a Roth 401K?

[LivingAlmostLarge]

Low tax rate now!

[sweeps]

I like combining pre-tax and post-tax investing. I don't think you need to switch if you don't want to.

[Broken Arrow]

Is your employer matching any contributions? If so, it's most likely worth contributing to it to get the match.

[jIM_Ohio]

I'm 23, and have a Roth IRA (maxed it out for 07) and a 401K. My company is offering a ROTH 401K. I think I'm fine with the combo of my pre-tax and after tax retirement money...is there any reason I should contribute to a Roth 401K?

You need to think about withdrawing the money in 20-30-40+ years.

Compare what you will be withdrawing relative to current income. If what you withdraw is much more than you make now, the Roth 401k makes lots of sense. If you don't know, a mix of Roth IRA plus traditional 401k makes sense so you have diversity of account types.

Here is some advice you did not ask for-

What is most tax efficient on way in is NOT the most tax efficient on way out.

Example
Tax efficient contributions
1) 401k/ deductable traditional IRA (money is tax free going in)
2) Roth accounts (pay taxes on money going in)
3) taxable brokerage accounts (pay taxes on money going in, plus taxes on gains each year)

Tax efficient withdraws
1) Roth accounts (tax free)
2) taxable accounts (5% rates possible, capped at 15% regardless of income)
3) 401k & deducatable IRAs (15%-25%-28%-33%-35% tax rates depending on income level- amount withdrawn)

There are some schools of thought which suggest to defer taxes now and pay them later. This is the 401k you have now. Tax laws change. Don't pay now, wait to see if law changes in your favor, pay taxes then. The higher the tax bracket (15%-25%-28%-33%-35%) the more this makes sense.

There are other schools of thought which suggest to pay taxes when they are cheapest (like pay as much tax at 15% as possible, and avoid paying 25% tax if possible).

One method is not correct or incorrect... as many people try to do both.

Here is a web site with tax tables to think about:
Reference Room