Reform Bill Intensifies Savings Focus

Fortunately, Congress had the good sense to make those distributions permanently tax-free. That's good news for the industry because many parents were hesitant to open 529 plans in fear that the perks were going to disappear.

And finally, the sun was supposed to set on the new Roth 401(k) that became available in January. As a refresher, if your employer's retirement plan allows it, the Roth 401(k) let's you designate part or all of your 401(k) contribution to a Roth IRA.

So while your contributions to a Roth 401(k) are nondeductible (just like a regular Roth IRA), you'll get tax-free withdrawals in retirement.

But even though Roth 401(k)s can be a great retirement savings vehicle, many employers didn't bother to offer them, again, because of the uncertainty. Now it's here to stay, so more people may be seeing this option at work.

Savings Plan Shifts

In another clear effort to encourage retirement savings, the bill allows employers to automatically enroll new employees into 401(k) plans. "So you'll actually have to take the time to opt out of the plan if you don't want to contribute," notes Nick Kaster, senior pension analyst at CCH, a provider of tax and business law information.

And if you leave your job with that employer, it will be easier to convert your 401(k) into a Roth IRA. The bill allows you to directly roll funds from a qualified retirement plan, like a 401(k), to a Roth IRA starting in 2008. Remember, in the past, you first had to roll that 401(k) money into a traditional IRA, because only IRA money could roll into a Roth IRA. Now you don't need that middle step.

The tax consequences don't go away, reminds Kaster. You'll still owe tax on the 401(k) money that's rolled into the Roth, but then that money and its earnings can grow tax-free.