BusinessReport.com

For many investors, the Roth IRA was an appealing retirement-planning vehicle, but one they couldn't use. Roths were designed for those in middle-income brackets, so the after-tax savings plan excluded many professionals and highly compensated employees.

That all changed January 1, when the Roth 401(k) plan went into effect. As the name suggests, the 'Roth K' is a hybrid of a Roth IRA and a traditional 401(k). Like a 401(k), Roth Ks have no earnings restrictions. They're open to anyone.

'What's attractive about the Roth K is that it allows those in the upper-income bracket to contribute,' explains David Koch, a tax attorney and CPA with Weill, Dunn & Koch. 'Before they couldn't make any Roth contributions whatsoever.'

Conventional Roth IRAs are limited to individuals earning $110,000 or less, or $160,000 for couples. Roth Ks have no such restrictions. The Roth IRA's stingy contribution limits are also relaxed in a Roth K. Like with 401(k)s, Roth Ks can take $15,000 a year, or $20,000 is you're over age 50. Traditional Roth IRA contributions are capped at $4,000, plus $500 if you're over 50. Also like 401(k)s, Roth Ks are administered by employers.

In terms of their tax structure, however, Roth K plans more closely resemble Roth IRAs. Contributions are made from after-tax money. The payoff comes at retirement, when the original investment plus all the appreciation can be withdrawn tax-free.

'It's a really good product, and it's a huge opportunity for our customers,' says Nicole Prejean, a trust administrator at the local office of Regions Morgan Keegan Trust, which sells Roth Ks and is beginning to shop them around to local companies.

That's why Our Lady of the Lake Regional Medical Center decided to offer to its 4,000 employees the Roth 403(b)--the non-profit's version of the 401(k). 'It's in addition to the other plans we already offer,' explains Terry Bowman, vice president human resources for The Lake. 'The idea is just to provide people with another option as they're thinking about investing and retirement planning.'

For businesses trying to decide whether to offer a Roth K to their employees, a key question is whether enough employees in the organization stand to gain from such an option. The answer varies, depending on the makeup of a company's employee base. For executives and highly compensated employees, Roth K plans offer an option that wasn't on the table before.

On the other end of the spectrum are lower wage earners and younger employees. They stand to gain from Roth Ks if they're reasonably confident they'll retire in a higher tax bracket than they are currently. That's because they'll pay fewer taxes on the front end, when their salaries are lower, than later when their earnings have increased.

For those in the middle who don't know where they'll be in 10 or 15 years, much less what they'll be earning, the Roth K is less appealing. 'If you're going to be in a lower income tax bracket when you retire than you are now, you may be better off in a traditional 401(k),' advises Koch. 'If you're unsure, hedge your bets and split your contributions between both types.'

Companies mulling whether to offer Roth K plans have other considerations as well. Adding an after-tax investment option such as a Roth requires changes to payroll processes. Since most companies offering Roth Ks will likely continue to offer traditional 401(k) plans as well, they'll need to implement safeguards to ensure that pre- and post-tax contributions are kept separate.

Employee training and education is another consideration, and another cost. For companies that don't farm out their payroll processes, payroll and HR departments will need to be brought up to speed on how Roth K plans differ from traditional 401(k) plans. Some companies may decide it's not worth the trouble.

Take the workers' comp insurer Louisiana United Business Association. Its CFO, Mike DePaul, decided against offering Roth Ks this year to its 60-plus employees for that very reason. Given the amount of work it would require to put the plan in place, he didn't think enough employees would benefit from it.

'We have a couple of people that would possibly benefit from it, but not enough to get us to want to change what we're doing now,' says DePaul. 'It's just not worth it.'

Nationwide, a lot of companies made the same determination. According to a recent survey by the Profit Sharing