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Q: I've heard that some employer-sponsored retirement plans now offer Roth options. What is a Roth, and is this something I should consider?

A: The difference between a Roth retirement account and a traditional employer-sponsored program is that when using a Roth, you pay taxes upfront on the money you invest, but the assets grow tax-deferred, and withdrawals are made tax-free. Starting this year, participants in employer-sponsored retirement plans — whether they are 401(k), 403(b), or 457 plans — can convert their savings to a Roth, if their plan offers that option, by paying taxes on the converted amount. Before you convert your retirement savings to a Roth, however, weigh the pros and cons.

First, the federal government taxes Roth contributions at this year's regular income tax rate — versus what your tax rate will be when you make eligible withdrawals. So Roth conversions generally make the most sense for people who don't intend to make withdrawals for a number of years or who expect their tax rate to be higher in retirement. Moreover, it's typically better to pay taxes owed on a Roth conversion with outside savings, so you're not tapping your nest egg to do so.

The tax-free growth potential the Roth account type offers may make it an attractive choice. Not all plans make a Roth available, but if yours does, it may be worth considering.

You should know that distributions (withdrawals) of contributions and earnings in a Roth account type are not taxed if the distribution is qualified. This means that the account has been held for at least five years and the distribution is being made due to disability, after death, or after you've reached age 59 ½. In addition, distributions must begin no later than age 70 ½ unless you are still working.

Other rules regarding Roth accounts may apply. For complete information, visit the IRS website at http://www.irs.gov/pub/irs-pdf/p4530.pdf.

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