The Tax Efficiency of Taxable Assets, Traditional 401(k)/IRAs, and Roth 401(k)/IRAs: The Traditional Is a Joint Venture Between the Employee/ Retiree and the Government, with the Employee/Retiree’s Interest a “Roth” Within

This article discusses three investments ranked in order of increasing tax efficiency: taxable assets, traditional 401(k)/IRAs (traditional accounts), and Roth 401(k)/IRAs (standalone Roth accounts). It is worth noting at the outset that retirement accounts are extraordinarily efficient for tax purposes. 3 With any increase in personal income or capital gains tax rates, taxable assets become even less tax-efficient relative to both the “Roth” within the traditional account and the standalone Roth account.