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A guy walks into a bar where he was told there was a talking dog that's an expert on retirement plans.

He asks the dog if he should do a conventional 401(k) or a Roth 401(k.) The dog goes, "Roth! Roth!" In disgust, the guy walks back out thinking that the dog is just barking.

The dog then turns to the other bar patrons, and, clearly annoyed at the interruption, continues to share his thoughts on the subject as follows:

Beginning this year, 401(k) participants can choose between making after-tax Roth contributions or the same old tax-deductible contributions they have been making for years -- and they can choose any combination of the two.

Money coming out of a Roth 401(k) at retirement will be entirely tax-free while 401(k) distributions will be taxed.

We are all left speculating as to what tax bracket we might be in after we retire and we compare against today's tax bite. Inevitably, analysis paralysis sets in and we begin losing sight of the forest for the trees.

I say my personal bias is to encourage people to have as much money as possible by the time they retire.

For most people, a deductible (conventional) 401(k) contribution is made up of a combination of tax savings and what would have been take-home pay. If the tax savings make up about 33 percent of the contribution, then someone who includes these tax savings in their 401(k) will have 50 percent more money at retirement.

In other words, if the same person pays the taxes (i.e. chooses the Roth treatment) and saves what is left after taxes, they would have ongoing contributions of only 66 percent of what otherwise could have been. So, at retirement time and at any time along the way, their account balance will be just 66 percent of what tax-deductible contributions would have totaled.

If you are not making the maximum contribution to a 401(k) plan today because you can't afford to reduce take-home pay by the maximum $15,000 ($20,000 more for those 50 or older) would cost, then you should not consider the Roth. The luxury of having tax-free money years from now would not offset the advantage of having 50 percent more money.

Depositing the tax savings increases your contribution amount by 50 percent. As any therapist would say, "Let's look at that."

When you make a Roth contribution, you do not get a tax deduction.

For example, someone aged 50 or older contributing $20,000 after tax would have to have earmarked $30,000 of their income for this contribution. They start with the last $30,000 of income on which they are taxed at least 33 percent (federal and California state income tax combined.) Roth contributors have to first pay their taxes ($10,000) and then have the remaining $20,000 to deposit into the plan.

By comparison, a conventional 401(k) contributor who wants to deposit $20,000 as a tax-deductible contribution does not have to earmark $30,000 -- they can contribute $20,000 and leave it at that.

That other $10,000 could be spent as follows: $3,300 (33%) for taxes and $6,400 for retiring debt, making investments, living expenses or consumer goods. The $6,400, if invested each year, would compound and accumulate to provide funds that could be used eventually to pay the taxes on income coming out of a conventional 401(k) plan. In the meantime, it could help pay the mortgage on a vacation home or some other investment that might appreciate.

Compare this to the Roth contributor who paid the $10,000 in taxes today. That money is gone forever.

There are some exceptions to my general rule: If you have inherited some money or have accumulated some after-tax (non-retirement fund) liquid assets, you could consider selling a portion and living on that money so that you can afford to have more of your paycheck deferred into the Roth. This would effectively turn after-tax (non-retirement plan) savings whose earnings each year are taxable into totally tax-free assets. People of "independent means" might want to consider this route.

You can't just write a check to the plan, however. Any money deposited into a 401(k) plan must come as a result of deferrals from what otherwise would have been your job income. Therefore, dipping into your after-tax savings to offset the loss of take-home pay plus the tax bill owed could make sense as a way to maximize the use of the Roth opportunity.

Also, if the reason for your 401(k) contributions is really to provide money for heirs, then a Roth would be the way to go. Children who are beneficiaries of Roth 401(k) money enjoy the tax-free buildup for years and then get to spend the money tax-free.

Generally speaking, the true Roth candidates are people who don't need the immediate gratification of today's tax deduction and the savings that result. Their patience will be rewarded with a tax-free windfall years later.

For the rest of us, paying taxes up front to enjoy tax-free income later doesn't make a lot of sense. Two thirds of what you spend in taxes could have been invested, and after compounding over the years, that money would be there to help pay the taxes that you otherwise will owe on distributions from your retirement plan.

There is no question that tax-free income is desirable, but at what price? Moreover, when do you want to pay the price?

In the absence of a crystal ball, it is impossible to know whether a Roth 401(k) is the way to go, so I'm inclined to let sleeping dogs lie.

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