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What benefit does the government receive for allowing people to put money into ROTH IRA's? It goes in after tax - builds and then the proceeds come out non-taxable. Seems to me that the govt. is giving up a substantial amount of tax revenue which they need. I can see at some point down the line where they say "we changed our mind - now there is "X" tax on Roths.
What am I missing? Is this laying the groundwork for reducing other benefits to seniors who have assets above a certain level?
they get the tax money up front today and not in dollars that have depreciated 30 years from now.
not everyone invests wisely in a traditional or even makes money so by betting on future dollars keeping up with inflation they are betting on your investing skills . stick it in a cd in a traditional ira and they may be behind dollar wise .
. as well as many folks relocate to low or no tax states so the states they live in get paid now too .
there are many ways to reduce income in retirement . so they prefer to tax you on the roth while you and perhaps a spouse are in your peak earning years today ..
Last edited by mathjak107; 03-18-2017 at 11:09 AM..
It used to be very small mount, Roth contribution, not even worth mention. Then after the Great Recession, they needed the tax money and encouraged people to convert to Roth, so that's how they get people to do it, tax benefits down the line.
this just reconfirms my suspicions that they may ultimately tax Roth's down the line. they won't call it a tax but they will be desperate for revenue to keep govt. going. that is if the financial system doesn't implode first... which it might.
if they do they may as well do away with retirement plans altogether . no one would trust them .
i do see some changes though , like after 70-1/2 you have to take money out and put it elsewhere unsheltered same as a traditional . that should have nothing to do with the fact up to that point you had tax free growth .
this just reconfirms my suspicions that they may ultimately tax Roth's down the line. they won't call it a tax but they will be desperate for revenue to keep govt. going. that is if the financial system doesn't implode first... which it might.
They can do anything in the future but I'm not a fortune teller so I just plan for the current tax law. I suspect they may not let you grow tax deferred indefinitely. In that case there are other ways to plan for leaving to heirs. I don't like to pay tax for conversion to Roth myself for that reason and I'm not even worry about my income for ACA limit. But I think they might lose out on the tax they are getting now.
what i do think is they will uncouple all the perks you get because they don't count roth income .
such as there is no reason roth income should not be counted towards getting your ss taxed , getting increases in medicare premiums ,aca subsidy's , etc .
they all have nothing to do with the original money being taxed so it should not be taxed again . these are external items that should count just the same whether you pay tax up front or in the end
You have to remember that SS is on shaky ground so creating tax sheltered saving accounts that takes pressure off SS is a good thing because it will be easier to make changes to SS without getting so many people angry. That has to be balanced with loss of tax revenue which is why Roth is limited.
like mathjak said, they get the money today vs tomorrow
financially, the ones who are able to take advantage of them tend to be in 25%+ income brackets, and most people tend to retire to a lower bracket anyhow. You'd be hard pressed to find anyone in the 15% or lower maxing out a IRA/401k... even if they did, they won't be retiring to a HIGHER tax bracket anyhow
so they pay their income bracket while working which is higher than later in retirement
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