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What would you do if... (Roth question)
Old 03-01-2018, 10:40 AM   #1
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What would you do if... (Roth question)

I'm on a Roth Roll today.

The question is: "What would you do if tax laws change and Roths are somehow taxed? What if the only change is that RMDs are required and THOSE are taxed? Would you bite the bullet and do nothing? Would you withdraw it all and just invest in after-tax accounts? Or something different?"

I'm asking because last year there were swirls of rumors about possibly changing the taxation of 401k contributions and Roths. With so many people investing in Roth (either directly, or by converting), I was just wondering what you would do in the event things change.

(Please, no politics, this is simply a 'what if' money topic as it relates to financial planning.)

**Editing to add that I'm talking about the now tax-free growth, not contributions. Sorry for the confusion.
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Old 03-01-2018, 10:50 AM   #2
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If the gov't is planning double taxation, which is what taxing Roth's would be, then why would they not tax your earnings twice as well.
Simply tax via payroll your earnings at 22% then on the tax filing, remove the line for already paid tax so you have to pay the 22% again.

Not sure how this thread cannot be political.....

I'd take out ALL my money and let the economic system collapse.
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Old 03-01-2018, 10:59 AM   #3
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Quote:
Originally Posted by Sunset View Post
If the gov't is planning double taxation, which is what taxing Roth's would be, then why would they not tax your earnings twice as well.
Simply tax via payroll your earnings at 22% then on the tax filing, remove the line for already paid tax so you have to pay the 22% again.
I started doing serious Roth conversions in recent years (ie 50k/year).

Folks I discussed this with were always concerned that the law may change and I may pay tax on the money again. A valid point.

But, the government could also raise the tax on traditional 401k/IRA distributions as well. Perhaps an across the board increase.

As such I did not let future changes involving any possible ROTH taxation change my plans to convert my money smoothly over the next 20 years or so to maximize the advantage offered by tax bracket maximization.

I also thought of converting it all by 2025 when the GOP tax law expires to take advantage of the favorable rates and brackets now available.

I decided to scale back and only convert half or so during this period to maintain the tax diversity of my asset base.

-gauss
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Old 03-01-2018, 11:25 AM   #4
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I don't recall any serious talk about taxing Roths, but I do recall the idea of making you take tax free RMDs from Roth's in a similar fashion as TIRAs. This would pull the Roth $ back to a taxable realm.

If this change happened, I would have to evaluate my options.

I, like gauss am doing small roth conversions (for me keeping just below the top of the 15% bracket, thus keeping the conversion tax low. I've been thinking of doing serious conversion to higher brackets.

If roth treatment changed, I would likely slow or eliminate conversion. But to guess of what the change would be and then setting up an analysis... just don't have time for gyrating analysis on what ifs until they are closer to real or somewhat understood.
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Old 03-01-2018, 12:08 PM   #5
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Baby boomer seniors should band together and not vote for any representative who supports additional taxes on any retirement income!

How much more taxation can non working seniors withstand? pension income, IRAs, Social Security, sheesh!

Further, the people who paid for Roth conversions should get a refund of their taxes paid.
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Old 03-01-2018, 12:18 PM   #6
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I also thought of converting it all by 2025 when the GOP tax law expires to take advantage of the favorable rates and brackets now available.
I will be looking at the same, once my wife and I leave the ACA subsidy need period and start Medicare in 2 years.

Not yet sure what percentage I'll convert to Roth. But if the temporary tax rates are still on the road to expiring, I'll try to convert what I can.

A lot can change between now and 2025 though...
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Old 03-01-2018, 01:07 PM   #7
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I will be looking at the same, once my wife and I leave the ACA subsidy need period and start Medicare in 2 years.

Not yet sure what percentage I'll convert to Roth. But if the temporary tax rates are still on the road to expiring, I'll try to convert what I can.

A lot can change between now and 2025 though...
In general just be sure that you don't try to do it all in one year. This may push you into a much higher tax bracket.

-gauss
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Old 03-01-2018, 01:17 PM   #8
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Quote:
Originally Posted by Sunset View Post
If the gov't is planning double taxation, which is what taxing Roth's would be, then why would they not tax your earnings twice as well.
Simply tax via payroll your earnings at 22% then on the tax filing, remove the line for already paid tax so you have to pay the 22% again.
I added an edit to my post in that I was just thinking about the growth that is currently tax-free. Sorry for the confusion with that.


Quote:
Originally Posted by gauss View Post
I started doing serious Roth conversions in recent years (ie 50k/year).

Folks I discussed this with were always concerned that the law may change and I may pay tax on the money again. A valid point.

But, the government could also raise the tax on traditional 401k/IRA distributions as well. Perhaps an across the board increase.

As such I did not let future changes involving any possible ROTH taxation change my plans to convert my money smoothly over the next 20 years or so to maximize the advantage offered by tax bracket maximization.

I also thought of converting it all by 2025 when the GOP tax law expires to take advantage of the favorable rates and brackets now available.

I decided to scale back and only convert half or so during this period to maintain the tax diversity of my asset base.

-gauss
Thanks. This is where I was leaning, too, but thought I'd see what others thought.

It has only been the last several years that I have thought much beyond "save save save". Now I'm learning the ins and outs of different strategies and the seemingly endless possibilities. It is both interesting and overwhelming.
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Old 03-01-2018, 01:21 PM   #9
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I do not worry about hypotheticals that have little chance of happening...
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Old 03-01-2018, 01:24 PM   #10
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Shoulda, coulda, woulda.... why bother until something is proposed and looks like it had traction.... any idiot in Congress can have an idea.

But.... if they proposed to tax growth then I would consider immediately redeeming all Roth and beat them to the punch.

IMO, most likely change would be RMDs and RMDs wouldn't bother me at all... just move money from Roth to taxable.
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Old 03-01-2018, 01:26 PM   #11
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Quote:
Originally Posted by bingybear View Post
I don't recall any serious talk about taxing Roths, but I do recall the idea of making you take tax free RMDs from Roth's in a similar fashion as TIRAs. This would pull the Roth $ back to a taxable realm.

If this change happened, I would have to evaluate my options.

I, like gauss am doing small roth conversions (for me keeping just below the top of the 15% bracket, thus keeping the conversion tax low. I've been thinking of doing serious conversion to higher brackets.

If roth treatment changed, I would likely slow or eliminate conversion. But to guess of what the change would be and then setting up an analysis... just don't have time for gyrating analysis on what ifs until they are closer to real or somewhat understood.
Yeah, it wasn't serious (that I know of), but I definitely saw it mentioned somewhere so it got me thinking about it.

I was thinking that if it happened, the tax would have to be small enough to not cause people to turn away from the Roth. I'm just not good enough at this to know if that would make it worth staying in Roths or not.
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Old 03-01-2018, 01:30 PM   #12
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Originally Posted by Texas Proud View Post
I do not worry about hypotheticals that have little chance of happening...
Eh, I'm not worried about it. I was just musing. It's more of a "would it still be worth it to go Roth" mental exercise.

Quote:
Originally Posted by pb4uski View Post
Shoulda, coulda, woulda.... why bother until something is proposed and looks like it had traction.... any idiot in Congress can have an idea.

But.... if they proposed to tax growth then I would consider immediately redeeming all Roth and beat them to the punch.

IMO, most likely change would be RMDs and RMDs wouldn't bother me at all... just move money from Roth to taxable.
Haha. Since I can't remember where I read the remark, it could have been "any idiot in the comment section on an internet article" with the idea. I'm sure it has been talked about, though, hence my thinking about it.

Your last two thoughts are what I was looking for with my musings. Thanks.
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Old 03-01-2018, 01:32 PM   #13
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Originally Posted by pb4uski View Post
Shoulda, coulda, woulda.... why bother until something is proposed and looks like it had traction.... any idiot in Congress can have an idea.

But.... if they proposed to tax growth then I would consider immediately redeeming all Roth and beat them to the punch.

IMO, most likely change would be RMDs and RMDs wouldn't bother me at all... just move money from Roth to taxable.
Somehow I think they may beat you to the punch on that and have the last laugh - ie make it retroactive a few years.


-gauss
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