In the spirit of Cyprus, sequestration threats, and general economic malise, I got out the tinfoil hat this weekend, and started to wonder how likely it would be that the government in, say, 10-15 years decides it wants to start taxing Roth distributions.
My wife has recently argued that we should both split our 401k and IRA contributions into 50% Roth / 50% traditional as a hedge against government desperation.
What do you think -- could we realistically see an attack on Roth accounts as global economic woes grind on?
Comments
http://www.fairmark.com/rothira/future.htm
Do what is an optimum strategy for your family at this moment.
Best Wishes
Regards,
Ted
Also: Don't know why you'd think they'd go after the Roth $$ any more aggressively than the non-Roth? To the pols it's all one big pot of $$ and these guys will rationalize any action if it serves their purposes (um ... or that of their big donors)
Like "pigs at the trough", politicians will raid your retirement plan one day - if they find enough excuses to do so. Don't think they aren't watching Cyprus like hawks.
Now, they may choose to restrict contributions (income limit) or eliminate any new contribution but existing monies will be grandfathered.
For example, you establish a Roth IRA in New York and then retire to Kentucky. Kentucky might want to tax your withdrawals or a portion of your withdrawals and it would not be enough of an impact to cause you to move to say Tennessee.
I concur with most in that they will NOT tax the Roth IRAs. Oh, they're a filthy scumbag lot, but they won't screw us that way because it would also screw themselves. In all honesty, they most often do things in a 'grandfathered' manner. If they decided to tax Roth IRA's, they will do it going forward with new contributions and on existing monies.
However, as MJG said, you cannot EVER try to anticipate the tax code and I concur. You can't do it so why try? What you do is follow, in this case, your wife's suggestions and do both, or all three, or better yet, all four. . . or more. By this I mean, you do your best to have a Roth IRA, and 401K, a traditional IRA, a 457 or 403B, a DB pension, savings, home equity, outside income, etc., etc., etc. You do it all. You do every possible variation on a retirement theme.
The reason why is to give yourself maximum flexibility when it comes time to withdraw REGARDLESS of the then current tax structure.
Years back I wrote about your Retirement Stool using the analogy of a foot stool. The more legs under your stool, the more sturdy it is. How many legs do you have? Can you add another leg or two? Can any of them be strengthened. Count everything.
good luck,
peace,
rono
I would not say it would never happen but the likelihood is very low.
At dispursement, roth dollars are still exposed to all of the following forms of "other" taxes (other than income):
Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Cigarette Tax
Court Fines (indirect taxes)
Dog License Tax
Fishing License Tax
Food License Tax
Fuel permit tax
Gasoline Tax (42 cents per gallon)
Hunting License Tax
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Septic Permit Tax
Service Charge Taxes
Social Security Tax
Road Usage Taxes (Truckers)
Sales Taxes
Recreational Vehicle Tax
Road Toll Booth Taxes
School Tax
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and
local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Toll Bridge Taxes
Toll Tunnel Taxes
Traffic Fines (indirect taxation)
Trailer Registration Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
No dodging these taxes in spite of the fact that a Roth dispursement was used to pay these taxes.
Roth IRA contribution comes from after-tax dollars (both federal and state). Thus the state of your residence has no claim on your Roth withdrawal in the future.
CNET: Telecom tax imposed in 1898 finally ends
I'll leave it to others to address other items on your exhausting, if not exhaustive, list of taxes. (Though as a general comment, Roth distributions are not taken into account when computing AGI for tax purposes. In this sense, Roth distributions differ from other non-taxable income; e.g. muni interest is included in AGI for the purpose of determining whether SS is taxable. So some taxes are indeed dodged by money distributed from Roths.)
Re vehicle fees: New tires & batteries carry a "disposal fee" when purchased. (guess that's in case you pitch them along the road somewhere when done using). If renting a car in Florida, tire & battery disposal fees are sometimes tacked on to your bill. If from a airport location, an "airport concession fee" is added. Should you choose not to sleep in the car, plan on paying Florida's hotel tax (called the Tourist Development Tax).
Just one "building" fee? Oh no. Separate permits & fees for: (1) zoning, (2) electrical, (3) structural, (4) plumbing & heating (called "mechanical") and (5) excavating or otherwise disturbing soil (called "erosion control"). Additional fees apply: (6) in environmentally sensitive areas, (7) If you have to cut down a tree, or 8) run your driveway across a stream.
And did you get the fee for entering state parks? True in both Michigan & Florida.
One of the many myths surrounding SS. As noted in this rather lengthy history of SS taxation, SS originally received special treatment, but now the earnings (not the employee contributions) are taxed in much the same way as any other annuity. This is why only 85% (at most) of payments are taxed.
http://talk.newagtalk.com/forums/thread-view.asp?tid=376880&mid=2989955#M2989955