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Some of you may know that in 2010, there's a one time provision in the tax code that allows individuals to convert pre-tax retirement accounts over to a Roth IRA (post tax). It's only for 2010 and the key is that there is no income requirement for the conversion. In every year except for 2010, the IRS laws set the limit at $100K modified adjusted income (regardless of single/married) if you want to do a conversion. You than have 2 years to pay taxes on the conversion (2011 and 2012). I won't get into the details but that's the general idea of this one time Roth IRA conversion in 2010 law.
I'm in my 30s. Already have a sizable retirement nest egg. It's my own contribution since I'm self-employed. I get to contribute over $40K a year. But that's my own money I'm contributing. There is no "free money" since there is no employer match.
I went to my financial advisor and we discussed one major concern with the Roth IRA conversion. We believe some time in the future, Congress (particularly) if it's a Democratic revenue collecting hungry government, will find a way to "tax" Roth IRA withdrawals. They will call it some type of excise tax or whatever. But they wlll probably find a way to try to collect more revenue in the future.
What do you guys think about the future of the Roth IRA? I'm very worried. The government might say if you withdraw more than $40K a year from the Roth IRA in 2040, anything above $40K on a Roth IRA would be subject to a 40% excise tax.
So you believe the government will "tax" Roth IRAs in the future? Or will they just "tax" withdrawals over a certain limit?
It's like the same thing with SSN benefits. After the 1993 tax law change (by Clinton's Democratic government), clients who earn income above a set amount and collect SSN benefits end up paying more taxes on SSN.
So my mother who's 69 and still working full time as a pharmacist ends up get "taxed" on the majority of her SSN benefits. I don't think she would have been "taxed" as much before the 1993 Clinton tax bill.
That's why I'm concerned about the future taxation of Roth IRAs.
You are referring to a provision of TIPRA. I have pumped as much possible into my ROTH, and plan to take advantage of TIPRA in 2010. I agree there is a threat - but not like you might think. I think a more likely scenario is they will means-test Social Security. In other words, your ROTH will be tax free, but they will tax the heck out of, or just reduce, your SS benefit based on how much you have. The effect is the same as taxing your ROTH.
There are really too many variables to answer this question in a forum like this. A lot can happen in the 40 years before you retire. That said, based on the projected spending, demographics, and other geopolitcal factors, I can't imagine a time in the future when marginal tax rates will be lower. I am betting that in the short-term there will be too much political backlash to directly double tax ROTHs or mess with the SS of the Baby Boomers. I plan on taking the hit now. You younger guys are out of luck, I'm afraid.
The Democrats have floated means-testing Social Security.
Yes, but I haven't heard anything about taxing Roth IRAs. The OP's concern is just conjecture - similar to the allegations that death panels will be part of health care reform.
Yes, but I haven't heard anything about taxing Roth IRAs. The OP's concern is just conjecture - similar to the allegations that death panels will be part of health care reform.
Politics is generally conjecture and speculation. What fun would facts be?
Is there any evidence whatsoever that taxing Roth IRAs is being proposed, or is it just the latest strawman from the teabag crowd?
They'll grandfather any new taxes placed on a Roth retirement plan. There would be too much of an uproar (more than dropping tea bags over the White House fence) for any politician to get away with taxing a Roth.
Is there any evidence whatsoever that taxing Roth IRAs is being proposed, or is it just the latest strawman from the teabag crowd?
The latter. This is a common tactic: make something up that would be bad, without any evidence it will ever happen or has even been proposed, and then say, "See, this is what the Democrats are going to do!"
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