With the recent arrival of the Roth 401 (k) you may have a chance at tax-free income. Grab it. With a traditional 401(k) you invest pretax dollars and pay taxes when you withdraw your money; with the Roth version you pay taxes on what you put in but nothing on your withdrawals.

Let's say that you contribute the maximum of $15,500 to your 401(k) and you're in the 28% tax bracket. Assuming an 8% annual return, you'll end up with $72,245 tax-free in 20 years with a Roth. If you go with the traditional 401(k) instead, you'll also end up with $72,245 in 20 years, but you'll pay taxes on the withdrawals. At the same 28% tax rate, you'd be left with $52,016 you could actually spend. When you fund the traditional 401(k), however, you shelter $15,500 from taxes. But even if you invest that $4,340 tax savings outside your plan, you'd have to earn well in excess of 8% a year to equal your Roth total after taxes.

Won't your tax bracket drop once you're no longer working? Don't count on it. If you're just starting your career, you'll almost certainly be earning more in 40 years. Even if you're mid-career, you can't assume your tax bracket will plummet. With federal tax rates currently at their lowest levels in decades and the federal deficit growing, it's not hard to imagine Congress raising taxes between now and your retirement. Assume a lower bracket only if you're near retirement and know your tax rate will fall.

Use the Roth 401(k0 calculator at http://www.dinkytown.net.

A regular 401(k) has one thing going for it: the up-front tax break. That's why you'll see your disposable income shrink if you switch to a Roth. But for the regular 401(k) even to come close to the Roth as a savings vehicle, you'd have to invest the extra cash that it put in your pocket. Would you?