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Are you worried that Congress may tax Roth IRA's in the future?
Old 05-13-2011, 03:11 AM   #1
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Are you worried that Congress may tax Roth IRA's in the future?

It seems that Ireland is doing just that. Won't a cash strapped Congress having a large lower class (because the middle class will have been destroyed) and a large senior cohort screaming for Medicare decide to go after this pot of cash rather than raise upper income tax rates to confiscatory levels?

Roth IRAs: Safety in Numbers? - Megan McArdle - Business - The Atlantic
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Old 05-13-2011, 03:42 AM   #2
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What a horrible thought! Anything is possible and future is uncertain. However, there will some angry mob if it happens here.
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Old 05-13-2011, 04:19 AM   #3
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I don't think they will directly but indirectly it is a possibility. For example many decades ago Muni bond interest was not considered income for any purposes. Now it is counted in things such as income for figuring out what portion of your SS benefits are taxable as income. I believe it has impact on some types of AMT calculations but I don't know the details.

I suspect that when it comes to means testing seniors for Medicare or SS, in the future Roth withdrawals will be included in the calculations somehow.
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Old 05-13-2011, 09:28 AM   #4
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Yes
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Old 05-13-2011, 09:32 AM   #5
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Worried? No. Will it happen? Maybe. Perhaps not explicitly. I doubt it will be counted in your income on your 1040 tax return (maybe for AMT though?). But in our world of public handouts, it may be considered income for purposes of calculating your eligibility for handouts (SS, medicare, health insurance subsidy, etc). Or subject to a wealth tax.

And if a national VAT is ever implemented, your Roth dollars will be taxed more than now.
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Old 05-13-2011, 09:37 AM   #6
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It is the main reason we are not going overly aggressive to convert existing IRA accounts to Roth accounts, even with the income limit restriction removed. Sure, paying 30% now might be better than paying higher taxes later, but you are placing a lot of trust that the game rules will not be changed.
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Old 05-13-2011, 09:50 AM   #7
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I vote with "not directly, but could be included in benefit eligibility or graded Medicare premium calculations".

But, I'm not "worried" in the sense that I'm concerned a tax on Roth withdrawals would make it hard for us to cover our basic spending.
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Old 05-13-2011, 09:54 AM   #8
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More likely imho that there would be a tax on new contributions/new accounts than to existing balances.
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Old 05-13-2011, 10:17 AM   #9
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VAT, Sales, Excise, Means, Tolls, Fees, Sins, Property, Medicare mod, ..... Gee, they really don't need to direct tax it as income to siphon a bit back to the Treasury (fed and state/local). They can use new taxes and tax code. I guess I still would bet on the Roth for better results.
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Old 05-13-2011, 01:10 PM   #10
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Yes. And I fear that they will sneak in a "VAT" at the wholesale level, which will increase prices, and be called "inflation".
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Old 05-13-2011, 01:38 PM   #11
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Directly, it won't happen IMO. Indirectly it's possible, especially if Roth income is included in income for the purpose of entitlement means testing in the future, and if the federal government moves to less dependence on income tax and more dependence on sales and use taxes. Both of these would make a Roth a worse deal than now, and neither would directly trigger income taxes on the Roth distributions themselves.
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Old 05-13-2011, 02:19 PM   #12
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Specifically, the Irish proposal is a wealth tax, a tax on intangible property held in personal pension accounts:

Quote:
The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State.
Ouch. 0.6% of principal taxed away every year. That'll teach you to save for old age.

Funds from the pension levy will be used to offset tax cuts elsewhere and fund part of a new jobs plan. The levy does not apply to public service pensions.
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Old 05-13-2011, 02:24 PM   #13
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I've gotta admit, the idea of seeing a cut in my top tax bracket rate balanced/funded by a levy on 'fat cat pensioners' does have a certain appeal. The entertainment value would be pretty high...
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Old 05-13-2011, 03:33 PM   #14
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Doubtful, most folks don't do Roths anyways. There are MUCH EASIER ways for the govt to squeeze us. Just let the tax cuts expire in 2 years and "voila"..........
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Old 05-13-2011, 03:47 PM   #15
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Originally Posted by FinanceDude View Post
Doubtful, most folks don't do Roths anyways. There are MUCH EASIER ways for the govt to squeeze us. Just let the tax cuts expire in 2 years and "voila"..........
That one is in the bag. But I don't expect them to stop there.

Ha
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Old 05-14-2011, 07:09 PM   #16
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Just let the tax cuts expire in 2 years
I doubt that President Trump would let that happen.
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Old 05-14-2011, 07:36 PM   #17
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Why would this surprise you? It was done in 1992 when the maximum amount of SS subject to taxes was raised from 50% to 85%.
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Old 05-14-2011, 10:04 PM   #18
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Worried, no. Do I suspect they might try this, yes.

I wouldn't put anything past these bastards, oops did I say that?

All the more reason no Roth conversions for me.
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Old 05-15-2011, 12:10 AM   #19
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If they did it, they probably would not do it directly.... it would be some complex scheme to increase taxes on some other income like SS (100% of SS is taxes instead of 85%).


I think a more likely event would be to increase taxes some other way. Look for part of the tax solution to be an increase in FICA.

But who knows what might end up being shoved into the AGI calculation that determines one's marginal income tax bracket.


There is not going to be a great (no cost) solution... there will be shared pain!
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Old 05-23-2011, 08:07 AM   #20
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It would be helpful to know how large the pool of Roth Assets is. I suspect it is really, really, really small; making any tax on these accounts rather pointless from a revenue raising perspective. But that information wouldn't help stoke fear and drive viewership, so it got left out.

No, I don't think this is something to worry about.
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