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Opinions, please: How likely that the government eventually breaks down and starts taxing Roths?

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?


  • Trying to forecast future tax structure is a fool's game. It is an impossible task that is a waste of time.

    Do what is an optimum strategy for your family at this moment.

    Best Wishes
  • Dear Shostakovich: Roth tax 0% chance !
  • I concur 110% with Ted and MJG. Then again, philosophically, I have never been a run for the hills, buy gold, and ammo kind of a guy.
  • edited March 2013
    They'll protect the Roths as long as they can because it's a great boon to the very wealthy. They can pay the required up-front tax out of their accrued wealth - not out of their wages & household budget like most of us do. (Of course, this assumes you believe the very wealthy control the levers of power:-)

    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)
  • Always be fearful of benefits that benefit a few and the constituency of one political party--this is why social security is hard to change because the recipients are in both political parties and also why means testing it is difficult because then it starts benefitting the constituency of one political party over another--thus it becomes easier to demagogue by the side not getting the benefits and eventually easier to change. Use the same analysis for Roths-- I can see a time where the needs to fund social programs swamps the political power of Roth IRA holders especially if they are concentrated in one political party. Here is how the argument to tax them will go--you enjoyed tax free growth over these years--we are only going to tax them when they are withdrawn especially if withdrawn by your heirs plus there are only 20 million of you versus the massive needs to fund social security and medicare(single payer health care )--so yes they probably will be taxed. Think of legislative ideas like water flowing over pavement--eventually that water will find the weakest part of the pavement and rush through it after years of punishment.
  • Society takes time to digest seemingly unfair power moves, like say.....taking away people's corporate pensions. I don't trust the clowns on the hill just like I don't trust these CEOs trying to cut low-level staff while at the same time allowing themselves $5 million salary raises.

    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.
  • This kind of fear might realistically arise in a country that does not control the issuance of its own currency--like Cyprus--or an American municipality that went out of control. Since the US is a currency issuer, it can never face a solvency crisis and short of that, it's really hard to imagine any US government doing something extreme like this, especially when there are so many alternative fiscal options.
  • I don't think taxing Roth idea would have a high chance of succeeding. The political outrage would stop any politician. Besides financial industry has vested interest in keeping the status quo and they have strong lobby power.

    Now, they may choose to restrict contributions (income limit) or eliminate any new contribution but existing monies will be grandfathered.
  • edited March 2013
    Reply to @Investor: if it comes to reneging on promises made to social security and Medicare recipients or reneging on promises about taxing Roth accounts-what side of that trade do you want to be on especially if most Roth accounts are held by people in one political party(don't know if that is true).

  • But would a desperate state try to tax gains you made while living in their state? Especially if your contribution was made while you lived in another state.

    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.
  • Howdy,

    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,



  • Reply to @Hogan: I think Roth accounts are not particular to one party or even income group. The main issue for politicians is reelection. So, they will be hesitant to piss off such diverse community. Also, since finance industry feed these political campaigns, they would lobby against such measure.

    I would not say it would never happen but the likelihood is very low.
  • Reply to @Investor: My posts about taxing Roths are pure speculation. I thinks things would have to get pretty bad for that to happen. I also agree that Roth account holders cut across the political spectrum which is a good thing for its survival. I work closely with the political process I see how power is exerted it is always about their supporters period. If we were ever at a point where a decision to reduce social security and Medicare had to be made (many think we are at that point) then you can bet that the pain will be felt by both constituencys of both parties that is all that I am really saying--that is how compromises are made it is not based on country it is based on constituency.
  • beebee
    edited March 2013
    Let's see, a Roth IRA is taxed by local, state and Federal gvernments as income as well as by SSI and workman's compensation prior to it being invested.

    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.

  • Reply to @Rbrt: Highly unlikely, even in your taxable accounts.

    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.
  • Reply to @Investor: Well, they been pssin off alota us for a while now. Latest just being sequester. Impacts just now beginning to be felt with control tower closings. Yikes - hope some small private aircraft ain't wandering around up there where he ain't supposed to be next time I'm on a airliner going somewhere. Not sure any of it really makes a lota difference to em - long as the contributions keep rollin in & fillin their coffers in time for the next election.
  • Reply to @bee: wow impressive list you did forget one other tax --and lets not forget it is truly a tax paid by working and retired people and that is the gambling tax--it is a voluntary tax that funds government so others like me don't have to pay as much.

  • The telephone excise tax was implemented in 1898 to fund the Spanish American War. FWIW, it was terminated Aug 1, 2006. Not only that, but the IRS provided a refund of taxes paid back to February 2003.

    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.)
  • Reply to @hank: Until the service is gone there is no value associated with government services. So, yes, smaller airports are losing a control tower. I hear nearby Georgetown airport will also lose its tower operations and will have to rely on air traffic control at AUS.
  • A long time ago, FDR signed the Social Security system into law and promised that it would never be taxed. When politicians need money, they will take it regardless of what they once said. If you trust your government to refrain from taxing Roth IRA's, then I have a beautiful bridge that I'd like to sell you!
  • edited March 2013
    Reply to @bee: A fair assembly there bee.

    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.
  • Reply to @Alex:
    One of the many myths surrounding SS.
    Myth 5: President Roosevelt promised that the annuity payments to the retirees would never be taxed as income

    Originally, Social Security benefits were not taxable income. This was not, however, a provision of the law, nor anything that President Roosevelt did or could have "promised." It was the result of a series of administrative rulings issued by the Treasury Department in the early years of the program.
    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.
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