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.
bump
Well, that’s the beauty of the Roth. Yes, the gov’t can change the rules. But the gov’t can’t change them quicker than I can log on to Fidelity and withdraw all my money, in an instant.
With a Roth, you can withdraw your entire balance, all at once, tax-free.
Suppose you have $500,000 in a regular 401k, that you funded over the years from your paycheck, using pre-tax contributions. The gov’t eyes that and says you have to buy a lifetime annuity from them, the scenario you describe in your post.
If you attempt to take your $500k out of the 401k, you will owe taxes on the entire amount. Since there is a considerable balance in your account, withdrawing it all in a single tax year will be ruinous, since much of the $500K will be taxed at the highest (38%) tax bracket.
If, on the other hand, you had $500K in a Roth, you can log onto your brokerage site from anywhere in the world and in 60 seconds the Roth is empty and no taxes are owed. Note: If you are age 59, no taxes are owed on either principal or gains. If you are under 59, you owe tax only on gains. Since, in my case, about 80% of my Roth balance is from contributions, my tax exposure is small if I’m forced to withdraw it all before I’m 59.
The forced annutization of 401k balances was suggested in Congress about 2-3 years back (it is the very scenario you astutely described) and that made me realize that the traditional IRA and 401k are sucker bets. With those pre-tax accounts, you basically put all your retirement savings in plain view of the government and pour figurative concrete around them by amassing a vast tax liability that is due upon withdrawal.
Another driving factor that converted me to Roths was legislation, IRC § 877A, which was enacted as part of the Heroes Earnings Assistance and Relief Tax Act (HEART) Act of 2008. Basically it says that if you decide to revoke your U.S. citizenship, it’s as if all the funds in your traditional IRA’s and 401k’s had been withdrawn immediately and all taxes are due immediately. Except of course for
Roth’s....
So, if the government does change the rules on retirement accounts and you pull the ripcord, would you rather owe taxes on a 401k or a nothing on a Roth?
Obviously, a well-planned strategy has a mix of physical assests (tools, land, firearms, collectibles, vehicles, etc), gold/silver, cash and tax-advantaged accounts. If you (like me) have worked in corporate America and have had to participate in retirement plans to get the valuable company matching funds, minimizing tax exposure throught the Roth is a good bet.