I’m basically following this plan now. I’ve converted almost all my wealth into Roth IRA accounts, no taxes due ever again. Paid the taxes now, when rates will never be lower. The 2010 law that removed the income restrictions on Roth conversions (limits are still in place on contributions, but conversions are uncorked) is one of the greatest laws ever passed. So desperate for tax revenue today, the government is willing to rob from future tax revenues to get the money today. Combined with historically low current tax rates and you’ve got the perfect explotation opportunity to front-pay taxes now, rather than at the usurious rates that are sure to come in the future.
Upon retirement, even if you have six or seven figures in Roth accounts, your income will show up as zero on your 1040 tax form. With an income of zero, you qualify for all sorts of mooch money from do-gooder liberals. Remember, many government assistance benefits are calculated off your adjusted gross income from your 1040, not from your actual net worth. I have friends of mine now who are millionaires but get government assistance, because they have zero “income”, due to Roth sheltering. I think this past spring, there was a news story on some person in San Diego who had a beautiful beach house, but was getting food stamps or something similar. That is a perfect example of this strategy.
Why is this possible? Well, simple laziness on the government’s part. They don’t want to try and calculate your net worth. Since 95 percent of the workers in this country get a paycheck, or if retired, use traditional (taxable) IRAs and non-Roth 401k’s, the government can get a quick and easy snapshot of income just by referencing AGI from your 1040 tax form.
How about an example? What about a farmer’s widow, who has 800 acres of prime farm land (say, worth a million dollars), but who has little cash income, since farmers struggle to save for retirement and her husband left her very little money when he died? No good liberal will make her sell the family farm to pay her heating oil bill. They’ll verify she has no AGI and then cut her a check. If she has $800,000 in a Roth, they’ll be none the wiser.
Your mileage may vary, depending on your state, but check this out for yourself. My state (PA) has some give-away programs that have caught on and have started asking for AGI and also Roth withdrawal amounts for the most recent year, but many of them are still AGI-based. Get on the web and look up every program you can find for your state (e.g. assistance for home heating, prescription drugs, property tax relief, electric bill, etc.) and see what is available, to assess the viability of an “AGI=$0” strategy in your state.
Think of it as the 21st century equivalent of the 1960’s “Burn, baby, burn”.......
I'm not trying to be disrespectful but your plan depends on the current tax regulations will remain with respect to Roths (and other tax shelter vehicles). When the machine needs $$ to feed itself it will take resources wherever it can find them.
I suspect you (and all of the rest of us) will be forced to trade in your retirement nest-egg in exchange for a guaranteed govt. lifetime retirement benefit (backed by the full faith and credit of the US treasury).
No thanks.