[CoachKandSportsguy]

Rollover to ROTH vs NON ROTH taxable account comparison:

ROTH gets counted in Federal estate tax
NON ROTH taxable account gets counted in Federal estate tax
Advantage : neither


ROTH has time limits for owner spending
NON ROTH taxable account has no time limits for owner spending
Advantage : ROTH dissipates/ effective advantage neither


ROTH has time limits for inherited spending
NON ROTH taxable account has no time limits for inherited spending
Advantage : NON ROTH


ROTH has does not have a step up in inherited tax basis
NON ROTH taxable account has a step up in inherited tax basis
Advantage : NON ROTH which has assets can be sold for zero / loss / minimal capital gains (taxable gains optionality advantage)


ROTH generates income tax free
NON ROTH taxable account generates taxable income
Advantage : ROTH, though NON ROTH can be invested in tax efficient funds / municipal bonds for minimal taxes annually if in a high tax bracket.


ROTH generates capital gains/losses tax free
NON ROTH taxable account generates taxable capital gains/losses
Advantage : ROTH for taxable gains, NON ROTH for taxable losses (hmmm, how good is your investment strategy?)

A NON ROTH can be invested in tax efficient funds. Withdrawal during a bear market gives NON ROTH tax write off advantage. And both accounts may / can have losses.


The "marketing" advantage of a ROTH is the avoidance of taxes annually and upon withdrawal, eliminating complicated tax records for accounting and capital gains /losses, including step up basis inherited tax accounting. Effectively, the ROTH eliminates ALL tax reporting for income, gains and losses, and you can throw away those historical records and party on.

The advantage of a NON ROTH destination is the opposite of above: the maintenance of tax records for taxable gains and losses which provides optionality of netting gains versus losses to tax savings.

Summary: if your sole motivation is tax avoidance, ignoring that ROTH investments can go UP and DOWN, and there is no guarantee of future or continued gains, then ROTH is the best destination.

If your motivation is tax optionality and realization that investments don't always go up annually, and that often times, one has to sell for market unrelated reasons and the market is down, there are less net taxes paid. Also passes increased tax optionality onto the inheritees with no time limit for withdrawal.

So understand your motivation and investment biases, and your investment strategy, and act accordingly. And sometimes, this example is why the choice appears tempting and easy, but the future is uncertain, and recency biases plays a large part of the assumption of the level of future uncertainty, the simple and tempting may not be the best choice for future investment uncertainty

As always, check with your financial and tax advisor for your particular situation, as there is an optimal answer for each person, depending upon their level of total wealth and financial/tax acumen.

old cursed finance guy