Norseman, I doubt they will change the rules on a Roth. Too politically risky. Besides, if they announce their intent to change the tax treatment of Roth funds, people will immediately draw them out while they are still tax-free, before the law can be changed and enacted. What will screw the folks who have big Roth balances is the enactment of a VAT. I’m a big Roth fan, but the thought of a “VAT in lieu of (or in addition to) income tax” scheme being passed in the future is what freaks me out. With a VAT, even withdrawing your Roth funds before they can change the Roth rules will not help, because the VAT will be the double taxation.
All they have to do is say in April of a given year that Roth balances as of January 1st of the current year will be taxed at 40% upon withdrawal so long as the balance is greater than, say, $500,000.
The only people who will complain will be the ones getting the shaft. Good luck with that. As I said, Obama pretty much destroyed the concept of contracts. Now it’s just open season on the law. After all, look at Obamacare. 90% of it is now unconstitutionally “play it by ear” executive orders.
You’re right about the VAT. First pay taxes on income for savings. Then pay a new tax on purchases with those already-taxed savings. Drop the income tax at the same time, just to rub it in.
And an astute politician could appeal to the 20-40 crowd by arguing that this would get even with the older generations for loading them down with the national debt. He’d actually have a point too, so don’t be surprised to see it come up for serious discussion in a few years.