Several tax-law changes in recent years have provided new options in retirement plans, increased limits on contributions, and reduced restrictions that had previously made separate individual retirement accounts for people covered by an employer plan less desirable. The result: More than 10 percent of households have more than one kind of retirement account, and many employers offer more than one type of 401(k) or 403(b).

Choice is good, but sometimes it's hard to sort through all the options. To help you out, this month the Money Lab takes an analytical look at the various types of retirement accounts. Does the type of account you choose now have a significant effect on your retirement income later?

To find out, we ran some computer scenarios to see what happens to $1,000 in pretax income put in each of the following: a taxable account, a regular 401(k) or IRA, a Roth 401(k) or IRA, a nondeductible contribution to a 401(k) or IRA, and a 401(k) with an employer matching contribution. We varied the age when the money was invested, tax rates, before-tax investment returns, and retirement withdrawal rates. Which options give you the best bang for your after-tax buck?

Several of our results were no surprise. For example, we found it almost always makes sense to take a company match if it's offered. But other findings might prompt you to rethink your strategy. See the table for some of our comparisons.


NONDEDUCTIBLE CONTRIBUTIONS

It was common to recommend nondeductible contributions for IRAs and 401(k)s a few years ago, before capital gains and dividend taxes were lowered, and some planners even touted variable annuities. Many advisers say that this makes little sense today. Our tests confirmed that, especially as you get older.

The value of tax-free compounding in an IRA, 401(k), or 403(b) is offset by the fact that returns from your retirement account are taxed at your income-tax rate when you withdraw them. Taxable savings, in contrast, may take advantage of lower capital gains and dividend tax rates. That reduces the toll of having to pay taxes each year, especially if your capital gains stay invested for several years at a time.

So ask yourself, how much time will your money compound tax-free? The longer the time frame, the greater the impact on your after-tax returns. If you are 30 and have lots of time to compound your gains, a nondeductible contribution will pay off. Of course, your tax bracket and fund performance also matter, but generally by the time you reach 50, you should avoid making any nondeductible investments in a tax-deferred retirement account.

For instance, if you expected a 10 percent before-tax return, paid 27.25 percent in taxes (25 percent federal and 3 percent state with a state tax credit), and you want to withdraw 6 percent of your retirement nest egg each year, at age 66 you could withdraw $219.49 for each $1,000 you in- vested in a taxable account when you were 50 years old. But you'd have only $216.92 for each $1,000 in a nondeductible qualified retirement account. In this example, we assume you paid your tax bill each year in the taxable account. But if you kept your capital gains invested in that account, you could have as much as $238.25 a year at 66.


REGULAR OR ROTH?

Now that Congress has allowed 401(k) and 403(b) plans to add a Roth option, you are even more likely to face a choice between getting your tax break up front or getting it when you withdraw your retirement savings. Which is better for you?

Theoretically, your after-tax results are equal if you assume you get the same rate of return and you face the same marginal tax rate when you start investing as when you retire. If you are in the 25 percent bracket, getting 75 percent of your income to invest or getting 75 percent after you withdraw it is mathematically identical. The choice boils down to preference. Do you want the money now (more current income from the tax deduction) or later (more after-tax income in retirement)?

But what if those assumptions change? Take tax rates. It's true that the current 25 percent federal bracket covers a wide range around the average U.S. salary. And many Americans will spend their entire working lives and retirement in that bracket. But if you move from a high income-tax state to a lower one when you retire, your overall tax rate can still go down.

Any scenario that reduces the tax rate on your retirement account after you retire means you should choose the regular 401(k) or IRA over the Roth version. That way, you'll get your tax break up front, when your rates are higher and the break is more valuable. For the same reason, a Roth is a better choice when you are sure your tax rate will go up later in life. For instance, if you are in your 20s,in your first job, and have good career prospects, you should choose a Roth.

As for investment gains, if you get a match from your employer, you will get less for a Roth contribution-assuming you contribute less than you might otherwise in order to pay the income tax you owe on that money. If you are in the 28 percent bracket, each dollar you earn that goes into a Roth leaves you only 72 cents to invest. That means a 33 percent employer match yields roughly 24 cents. In that situation, it's better to choose a matched regular 401(k) than a matched Roth. Note that in this example, we assume you have no other source of funds from which to pay the taxes you owe on the money you place in the Roth. You can always afford to put more money toward a regular 401(k) because you'll be getting a tax break up front.


BAD INVESTMENT CHOICES

Not all employer plans are good ones. You may have a limited selection of funds, and their quality may be subpar. Where contributions are made in employer stock, the risk of having so much of your financial future in one basket may make you uncomfortable. Many of us face this dilemma: Do the tax breaks of employer plans justify contributing to them even if the investment options are poor?

Of course, you can always open your own IRA, contribute up to $4,000 ($5,000 if you're 50 or older), and choose your own investments. Many people covered by company plans choose not to do this because they can't take a deduction for the IRA contribution. And if you make more than $110,000 (single filer) or $160,000 (married filing jointly), you aren't eligible to contribute to a Roth IRA. Even if you can take the full deduction, you may still want to save more than the allowable limit. Should you put money into the company plan with the lousy investments?

In our example, which assumes an annual return of 10 percent outside the company retirement plan, a 45-year-old in a 27.25 percent combined federal/state tax bracket could get an average annualized return as low as 8.5 percent a year in a regular or Roth 401(k) and still come out ahead of someone who sticks the money in a taxable account.

To put those numbers in perspective, over the last 15 years, only one-third of existing domestic stock mutual funds underperformed the 10.8 percent annual Standard & Poor's 500 return by more than 1.5 percentage points. So make sure your fund choices are truly dogs before you give up on the company plan.