Workers might be saving money for retirement in either atraditional tax-deductible 401(k) or in a Roth 401(k), but theymight not understand the differences between the two, so they’renot making an informed decision on whichto use or how much to save in each.

That’s according to research from the National Bureau ofEconomic Research, which looked at the employee contributions at 11large companies that added a Roth 401(k) option after 2006. TheNBER study revealed that there was no significant difference intotal contribution rates between those employees hired in the yearbefore the Roth was added and those who were hired immediatelyafterward.

While a contribution of $1,000 will cost the employee less intake-home pay when going into a traditional 401(k), it will costthe whole $1,000 when going into a Roth, since the money going intoa Roth is taxed up front — while withdrawals, including investmentreturns, are not taxed on withdrawal. But employees either don’trealize that the Roth funds won’t be taxed when they withdraw themon retirement, or are too much in need of the current tax break towait that long.

The reason the study concluded that people don’t reallyunderstand the difference is that contributors could have gottenaway with putting less money into a Roth, sincebecause of the tax-free withdrawals at retirement they’d get thesame amount of money out that they would have if they’d contributedmore money into a traditional plan.

But, said the study, “that’s not what they do.”

And in a separate survey, when people were asked how much animaginary couple earning $100,000 should contribute to a retirementplan at work, they arrived at the same percentage — approximately11 percent — regardless of whether they were told the money wouldbe going into a traditional 401(k) plan or into a Roth or into bothplans together.

In addition, nearly half of the respondents got both questionswrong when asked two questions about the tax rules that governedRoths and traditional 401(k)s.

Of course, an unrelated Harris Poll has alreadyfound results that seem to indicate people can’t figure out how tomaximize retirement income so that it will last for their wholeretirement; this appears to add additional evidence thatparticipants aren’t thinking far enough ahead about how muchthey’ll need and how to make sure they get the most bang for theirretirement bucks once they doretire.

Do plan advisors need to provide additional education on the taxramifications of retirement contributions so that participants havea better understanding of how today’s contribution decisions willaffect tomorrow’s withdrawals?