U.S. to allow tax break on retirement accounts (one-time shot - convert IRAs into Roth IRAs)

International Herald Tribune ^ | 5/15/06 | David Cay Johnston

[Libloather]

U.S. to allow tax break on retirement accounts
By David Cay Johnston
The New York Times
MONDAY, MAY 15, 2006

President George W. Bush is scheduled this week to sign into law an extraordinary deal for people with retirement savings accounts.

By paying $1 in income taxes before they come due, these investors can ultimately avoid taxes today that are conservatively worth $3.50. Those who cannot afford to take advantage of this deal may think about it differently, however, since the $2.50 of net tax savings is, like all of the Bush tax cuts, being financed with more government debt, which means more of their future taxes will go to interest instead of government services.

The deal is a one-time opportunity to convert Individual Retirement Accounts, on which taxes are deferred until money is withdrawn, into Roth IRAs, where investment gains are tax-free.

Making the deal even sweeter is a provision that taxes on the conversions, which would occur in 2010, be paid in two installments, in 2011 and 2012. An almost identical deal was signed into law by President Bill Clinton, allowing such conversions to Roths in 1998, but with the taxes paid in four annual installments.

One Roth expert is already promoting a plan to pass Roths on to heirs, showing how $50,000 can produce, over more than a century, more than $41 million in tax-free income.

The estimate that for each $1 the government collects up front it will lose the equivalent of $3.50 comes from the Tax Policy Center, a nonprofit research organization whose computer model the U.S. Treasury has deemed reliable. The center is a joint project of the Urban Institute and the Brookings Institution and is run by tax experts who served President Reagan, the first President Bush and Clinton.

[Libloather]

Those who cannot afford to take advantage of this deal may think about it differently, however, since the $2.50 of net tax savings is, like all of the Bush tax cuts, being financed with more government debt, which means more of their future taxes will go to interest instead of government services.

Please disregard the author's misguided opinion...

[Peach]

OMG. We converted our IRAs to Roths in the late 90's and paid those taxes through the nose for 3 years. At a time we had just retired!

I want my $$ back! LOL

[thoughtomator]

Another giveaway to a select group of people. Just what we need.

[eastsider]

If only they'd allow this with my 401(k) ...

[in hoc signo vinces]

Hey, it's the NYT when have they ever been for anything the POTUS has done...biased is shown in many ways, by what you report, what you leave out when you report, how your report it, and what you make up...the Slimes at the New York Times, use every rhetorical device available to deceive the public.

[muawiyah]

Right ~ the author's opinion fails to differentiate between MY INCOME and someone else's, or the aggregate income of the entire nation.

Betcha' he smokes pot while he writes.

[Looper]

Great topic, but just a horrible article, either due to bad writing or editing or both. It does not make clear how the conversions work and just include half-baked opinions.

[thinkthenpost]

I'm confused:

I must have read a different story than the rest of you.
Anyone who converts a traditional IRA to a Roth has to pay taxes on the conversion just like you did except they have to do pay the taxes in two years, not the 3 you took, or the 4 that were apparently available back in the 90's, what $$ do you want back and how is the a giveaway to a privileged few??

[oblomov]

David Cay Johnston is also known by his nom de plume, Linda O. Johnston, author of Nothing to Fear but Ferrets and other classics.

[meadsjn]

.

[napscoordinator]

Another giveaway to a select group of people. Just what we need.



Thank you but I am one of those people. In the late 90's I was playing around with my stocks and mutual funds and decided to use the IRA as a safety and did not want to move those funds. I always regretted it, but thanks to my for sure now favorite President I am switching over as soon as I get the green light. Sorry to disappoint you. Besides, I have VERY little government breaks. I have never even gotten a dollar from welfare. No food stamps, no WIC, nothing.

[RetiredArmy]

Dudden much matter what Bush or the RINO party do, when the socialist dems get power, they are going to tax all IRA's, Roths, etc, at 15% or so to buy votes (the Hillary plan), and then when you start drawing the funds upon retirement, tax you again. Socialism just waiting on the front porch.

[Alberta's Child]

My opinion is that anyone who takes advantage of this incentive is running a huge risk. There is ABSOLUTELY NOTHING that will prevent Congress from rescinding the tax exemptions for Roth IRAs in the future, and with all of the projected (unfunded) liabilities in Federal entitlements you can be damn sure that these things will be prime sources of revenue for politicians in the future.

[thoughtomator]

By making it a one shot deal, rather than an ongoing ability anyone can take advantage of at the time that is best for them, what this does is hand the people who are ready now a gift at the expense of those who will be ready in the future.

[thinkthenpost]

I've heard this theory advanced before, but if it occurs I think it will be as the funds for the Social Security Nets are running out, (IMO 20-40 years), that is when I REALLY worry about the future of this country. I also really wish some kind of individual account had been tried with Social Security and Medicare, but the way the debate was turned it a joke I doubt any politician will ever try anything meaningful. I also predict a couple of percentage points increase in the SS and Medicare withholding rates before they rate the countries retirement savings.

[thoughtomator]

I've never seen a government handout myself. What I have seen is that an astonishingly large amount of money is taken from me by the government to pay for all the goodies other people get, apparently for being in the morally superior position of not being me...

[thinkthenpost]

I wouldn't have a problem with an ongoing ability to convert at anytime, so concerns about the length of time to cover taxes owed on the change over but I'm sure that can reasonable be set. I don't really understand why anyone would open a new IRA that was not a Roth and since the Roth has been around for 10+ years I would think the # of traditional IRAs would eventually go down to very few, but I'm wrong alot.

[dodger]

If memory serves, Roths are not an option for persons earning over about $180K.

[thinkthenpost]

I remember an income limit, no idea what it is, but another example of I'm confused: Why in the world is the government mandating the type of retirement saving I choose to use? I know the feds mandate all kinds of things, and IMO many they should have absolutely zero say about.

[Peach]

I was wrong; as I was trying to watch the corn on the cob and read FR, I saw that for $1 a person could convert their IRA to a Roth. I didn't realize until I came back to show my husband that the reporter is showing how converting now can save money later.

This is very badly written.