Retire the Roth?

[steelyman]

No comment from me. I am only the messenger.

Roth IRA: Time to retire Roth IRAs - latimes.com

 

[chinaco]

Wait a few years until I get an opportunity roll over my traditional tax deferred accounts to my Roth IRA!

 

[MasterBlaster]

And so it starts. A promise not kept.

They want to get you both coming and going.

 

[mh]

And so it starts. A promise not kept.

They want to get you both coming and going.

If I remember the article correctly. It indicated that the current US administration was more interested in expanding the Roth program rather than curtailing it.

 

[ronin]

One writer's opinion. Nothing to do with anything in reality.

 

[yakers]

Usually the LA Times has good financial writers. This one is missing the point. If the desire is to limit the extent of untaxed funds they could just replace the income cap on conversions. That alone would make the amount in Roths insignificant in the overall budget/national debt scheme of things and leave lower/moderate income folks with some sheltered savings.
If the country develops a VAT/national sales tax system then the shelters will be less significant.

 

[steelyman]

If the desire is to limit the extent of untaxed funds they could just replace the income cap on conversions. That alone would make the amount in Roths insignificant in the overall budget/national debt scheme of things and leave lower/moderate income folks with some sheltered savings.

Well, despite my opening statement, there is a comment from me. I think this is an excellent observation.

 

[MasterBlaster]

Usually the LA Times has good financial writers. This one is missing the point. If the desire is to limit the extent of untaxed funds they could just replace the income cap on conversions. That alone would make the amount in Roths insignificant in the overall budget/national debt scheme of things and leave lower/moderate income folks with some sheltered savings.
If the country develops a VAT/national sales tax system then the shelters will be less significant.

That would work on future conversions. However the horse may already be out of the barn here.

 

[TromboneAl]

Makes me more glad I converted $40K last year.

 

[growing_older]

This author is attempting to make a specialty of writing articles opposing tax breaks of all sorts. He also opposes capital loss carryover and charitable deductions for donation of appreciated securities.

 

[LOL!]

I think the Roth IRA has cost folks taxes that they would not otherwise pay. Yep, that's right: The Roth IRA has actually helped the government gather in more taxes than taxpayers would normally have paid.

The main reason is that folks are steered into Roths while paying the taxes on the money that goes in at their high marginal rates. For some odd reason, they do not understand the tax code which has a 0% tax bracket that many folks will use in retirement. If they had just used a traditional IRA, they would have the money tax-free go in and substantially tax-free coming out.

So the opinion piece is way off base here.

 

[steelyman]

I think the Roth IRA has cost folks taxes that they would not otherwise pay. Yep, that's right: The Roth IRA has actually helped the government gather in more taxes than taxpayers would normally have paid.

The main reason is that folks are steered into Roths while paying the taxes on the money that goes in at their high marginal rates. For some odd reason, they do not understand the tax code which has a 0% tax bracket that many folks will use in retirement. If they had just used a traditional IRA, they would have the money tax-free go in and substantially tax-free coming out.

So the opinion piece is way off base here.

Do people really have a 0% tax bracket in retirement? That surprises me.

 

[LOL!]

Check with TromboneAl et al.

 

[Koolau]

As the resident cheerleader for the ROTH IRA (note, I didn't say expert) I don't think the author is in any way speaking for the various folks who wish to bolster tax revenues. Those in Congress as well as the President should LOVE the ROTH because it puts more tax dollars in the coffers NOW. People who put current money in ROTHs pay the taxes in the current tax year (NOW!) and those who convert put even more money into the current tax year (NOW!) Why would any elected official not love the ROTH? Any downside will happen later. As we all know, elected officials care only about the year or two before the next election. Any further out, they figure to worry about that if they are still in office at the time.

Nope, the ROTH makes sense to politicians right now. I don't think it's going away any time soon, even though the author of the article has a point that - in the long run - it's (potentially) a bad deal for the tax collector.

I do think LOL's point is often valid. Those considering ROTHs have to do some serious thinking about where they might be in the future, tax wise. ROTHs could be a loser for many people. In the case of us "rich" ERs (see recent poll on net worth, heh, heh, heh) ROTHs can be a part of a long-term strategy to hedge the tax game. Obviously, elected officials can wreck that planning at some point, but the idea is to play the odds to your favor. For instance (I know this sounds like a broken record) does anyone here expect future tax rates to go down?

I'm still "titrating" my taxes with ROTH conversions and (at this time) plan to do so until I turn 70 (beginning of RMDs and also, when I will take SS). The good news/bad news is that I haven't made too big a dent in my 401(k) as the darn thing just keeps growing. (I know, I know. "Poor baby!")

The usual caveats apply. YMMV.

 

[steelyman]

I think it's true that the Roths will be around for a while, and as long as they are, I'll continue to contribute. My tax rate will likely be greater than zero!

 

[ItDontMeanAThing]

Do people really have a 0% tax bracket in retirement? That surprises me.

There is a 0% tax bracket for everyone. One just has to have a sufficiently low income. Shoot, if it's low enough and you're working there is the earned income tax credit. Their tax bracket is a negative number.

I paid zero federal taxes in '09 on adjusted gross income of 8,600 and zero taxes in '10 on AGI of 6,500. I certainly spent more than that, but it came from my taxable accounts. Can't imagine how I'll keep paying zero taxes once I start drawing from the IRA.

 

[TromboneAl]

Check with TromboneAl et al.

True, I'm at 0% now (or would be without roth conversion), but when I'm withdrawing IRA money I won't be.

 

[steelyman]

True, I'm at 0% now (or would be without roth conversion), but when I'm withdrawing IRA money I won't be.

Ah. Thanks, that makes more sense. Next year, I am also shooting for a zero percent bracket, but after that I won't be either.

 

[Htown Harry]

For instance (I know this sounds like a broken record) does anyone here expect future tax rates to go down?

I would agree that it is unlikely that overall income tax revenue will be going down, but I believe the possibility of rates going down is higher.

Various credible tax reform proposals (i.e. the deficit commission co-chairs report and, vaguely, the Ryan plan) propose a reduction in income tax rates paired with reductions of "tax expenditures" in the form of deductions and credits.

Although I'm not ready to say that I expect a full-scale tax code overhaul to actually occur, the possibility is not trivial. Even a revenue-neutral compromise with modest changes to the personal and corporate deductions both sides agree are "loopholes" would be a moderating force against the higher tax rates that otherwise look likely. Of course, another force against rising rates is "no tax increases" politics, currently on the rise.

All factors in mind, I'm comfortable assuming today's tax tables in my Roth conversion deliberations. Just one opinion...

 

[teejayevans]

Other than all you RICH people using this tax loophole to hoard your billions and not paying taxes, the other aspect the writer mentions is that this money is not being
spent, GASP!! Because you are not force to take deductions at 70.5 Clearly we should put a stop to this hoarding of money (otherwise known as saving for retirement), this board is clearing destroying america, shame on y'all.
TJ

 

[rescueme]

Other than all you RICH people using this tax loophole to hoard your billions and not paying taxes...

So - what's your point? ...

 

[KingB]

Ah. Thanks, that makes more sense. Next year, I am also shooting for a zero percent bracket, but after that I won't be either.

I am also considering shooting for 0 next year. But that would mean that I will have a bigger RMD on later years which will put me on a higher tax bracket. Wouldn't it be better if I withdraw some earlier and pay tax at the lower rate.

 

[LOL!]

I am also considering shooting for 0 next year. But that would mean that I will have a bigger RMD on later years which will put me on a higher tax bracket. Wouldn't it be better if I withdraw some earlier and pay tax at the lower rate.

Yes, it would be better. Folks in these low tax brackets look ahead to see what's up on the road ahead. They often convert some of their IRA money to a Roth IRA. This reduces future taxes and future RMDs.