Ever since Roths came out, I have opposed them for most people. Why? You assume that you can take your money out tax free. I have some grey hair. I assure you sooner or later the Roth rules wlll change and wirhdrawals will become taxable at least to the extent they will increase the taxability of your social security. Barron's had a good article about this on 5 March 2007, "Breaking Faith on Savings Is Very Easy" (link), by Edward McQuarrie. Most CPAs I know consider Roths a scam. Get your tax deductions now! Or as the ancients said, "Put not your faith in princes".
Well said, IA. It's them old U.S. Blues.
That's a risk. But I don't expect to get much, if any, Social Security anyway. By the time my generation retires, it will probably be means-tested.
While it's possible Congress would explicitly violate the Roth contract and double tax them, I don't see that as likely. That would be a blatant theft from a large number of middle class voters.
Social security payments were not taxable until about 20 years ago. Every two years we get a new tax law. I believe the law will be changed adverse to Roths. I've said my piece. You've been warned. Thanks Zeke.
Excellent points, and thanks for the article. I added a link to a copy of the article in your comment.
Still, I'm comfortable with my choice. Many of the possibilities (e.g. sunsetting and marking a new cost basis) raised in the article would be bad for Roths, but not so bad as to make them a bad choice.
Also, there's the concept of "tax diversification" -- spread your money around among taxable, tax-deferred, and tax-free accounts, so you have the flexibility to draw from whatever type of account makes sense under future tax laws.
And here's another view:
The policy decision to tax social security benefits was on very different grounds. Congress never enticed people to enter the social security system with the promise that benefits would be tax free. There wasn't a bait and switch. The initial decision was to create a safety net and not tax the benefits; later Congress decided that people at certain income levels should pay tax on part of the earnings. That's very different from reneging on a promise to leave earnings free of tax.
From time to time, Congress has changed the law to cut back on benefits of various types of retirement plans. These changes have generally been accompanied by generous transition rules to protect those who relied on prior law. Similar treatment seems likely if Congress decides at some point to cut back or shut down the Roth IRA.
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Since you mentioned HillaryCare, perhaps you should also mention the "flat" and/or "fair" tax?
If we get either of those, say goodbye to your Roth's tax-free status.
The current system could change to tax Roth income in some way - perhaps a tax on SS?
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