If you’re sold on the idea of a Roth 401(k), you can roll over some or all of your money from a traditional 401(k) to a Roth 401(k) in what’s known as an in-plan conversion—but you’d better be sure, because there's no way to roll it back. Nonetheless, this is an especially good time to do a conversion because your account has likely lost money amid the stock market downturn, so you’ll pay less in upfront tax.
Still, there are some caveats. You’ll be subject to taxes and a 10% withdrawal penalty if you take investment earnings (not your contributions) out of a Roth 401(k) before you’ve had the account for five years and if you’re not yet 59 and ½. So avoid setting one up if you’re planning to retire soonish and counting on that money.
Also: Employer matches. Most companies will match the dollar value of their workers’ contributions up to a certain point, but they’ll put that money into their regular 401(k)s, even if the employee is contributing to a Roth 401(k). So be aware that whatever your employer is matching, along with earnings, will be subject to tax in retirement. In that case, even with a Roth 401(k), you won't be able to fully escape the taxman.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.