We all have seen the statistics that people are living longer. Experts are predicting that Americans who turned 65 in 2000 are expected to live another 18 years, on average. Unfortunately, many are finding themselves financially unprepared for the length of their retirement, and are being forced to return to the workforce well into their golden years.

In an effort to help individuals save more for a retirement that will likely be longer and more costly than ever, a new employer-sponsored retirement vehicle is set to debut in early 2006. It’s called the Roth 401(k) and, as it sounds, combines the features of the traditional 401(k) with some of the benefits of the Roth IRA.

Introduced under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, the Roth 401(k) received attention at its introduction in 2001, but quickly fell off the radar. Now that 2006 is here, it is expected that this new retirement vehicle could soon pick up momentum and be a great addition to many employers’ retirement plans.

According to a recent survey conducted by Hewitt Associates, an employee benefits resource firm, over one-third of surveyed employers reported that they are very likely or somewhat likely to adopt the Roth 401(k) when it becomes available. While employers are not required to incorporate the Roth 401(k) into their retirement plan, some are remaining on the fence because they are concerned about the costs associated with managing the plan and the time involved educating employees.

So, how does the plan work? Contrary to the Roth IRA, which is available only to individuals earning less than $110,000 individually or $160,000 as a couple, the Roth 401(k) is available to anyone eligible to contribute to a 401(k). That is why it’s believed that this could become a popular retirement vehicle for high-income individuals who currently are not able to contribute to a Roth IRA due to income restrictions.

Differences From Previous Plans

Unlike traditional 401(k) plans that allow employees to make pre-tax contributions, the Roth 401(k) allows for after-tax contributions — similar to that of a Roth IRA. For 2006, individuals will be able to contribute up to $15,000 to either their 401(k) or their Roth 401(k), along an additional catch-up contribution of $5,000 for those over the age of 50. For example, an individual cannot contribute $15,000 to their company-sponsored 401(k) and another $15,000 to a Roth 401(k). They must find a split that best fits their individual situation.

Another benefit of the new plan is that it provides another avenue for individuals to accumulate more tax-free retirement income than they could through a Roth IRA ($4,000 in 2006 or $5,000 for individuals over 50). It will also allow individuals the opportunity to roll over an existing balance to a Roth IRA, without bumping up against the $100,000 income limit for Roth IRA conversions.

When it comes to distributions from the Roth 401(k), individuals must take required minimum distributions at the age of 70½. In addition, individuals are eligible for distributions upon termination of employment, disability, attainment of age 59½, or under a financial hardship.

With the upcoming release of the Roth 401(k), many employers will likely weigh the benefits of offering this new plan to their employees. If adopted by your company, you should closely evaluate the options available and assess how your decisions today will impact you now, and also in retirement.