What's your best retirement option: For most people the Roth IRA is the next best retirement option. In 2005 the max contribution was $4000, if you are over 50 the limit was $4500. Another advantage of the 401K is the you can usually contribute more than the $4000 to the Roth IRA. For example my employer allows us to contribute up to $14,000 per year.
Roth IRA Income Limits: Unforturnately, the Roth IRA is not for everyone, it does have limits on who can contribute based on income. If your adjusted gross income is $95,000 if you're single or $150,000 if you're married, the amount you can contribute to a Roth begins to decrease, reaching zero for those with an AGI of $110,000 (singles) or $160,000 (married). So if you cannot contribute to a Roth IRA make sure you are contributing to the 401(k) and/or traditional IRAs.
Tax advantages of a Roth IRA: Roth contributions do not reduce taxable income in the year of the contribution in other work there's no deduction. However, the Roth is a tax-free account; no taxes are paid on the interest, dividends, or gains ever. So in other words if you contribute every year to a Roth IRA and you do a wonderful job of investing all of your withdraws from the account are tax free. Pretty cool in my book.
Another advantage of the Roth IRA is that there are no mandatory withdraws. For example lets say you retire and you don't need to dip into the Roth IRA. The government doesn't care they aren't getting any tax benefit so you can let the account grow for 10 or 20 years what ever you want. This benefit also applies to your heirs as well, however, the heirs will be required to pay taxes on the inheritance.
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