Requiem for the Roth IRA

American Thinker.com ^ | October 15, 2021 | Anonymous in Florida

[Kaslin]

One of the great senators of the modern era was William Roth, by whose vision and persistence the Roth IRA was established in 1997, giving average Americans, especially those without a pension, the opportunity to build their financial independence without fear of rising tax rates.

The Roth could be funded either with after-tax dollars or by converting money from a conventional IRA. The original law said that: (1) the taxpayer could invest in a wider range of investments than with other tax-advantaged plans, (2) both the growth of and withdrawal from the account would be tax-free and (3) upon death, the account could pass to non-spousal beneficiaries who could let the funds grow tax-free during their lifetime. The Roth was a superb financial planning vehicle for people with some assets, but who could not afford the elaborate trusts of the super-rich.

I quickly saw the advantages of the Roth, and gradually started converting my pre-tax IRA accounts in 2004. For every dollar converted, I had to report it as income on my tax return and pay tax at my highest marginal rate. Eventually, I converted all of my pre-tax IRAs to Roths, having paid huge amounts in taxes in order to fulfill my part of the deal that the government offered with the 1997 law.

Then in 2019, Congress changed the law by enacting the deceptively-titled SECURE Act, which actually stands for “Screw Every Citizen Using Roth Equity.” It reduces the lifetime growth of inherited Roths for non-spouse beneficiaries to only ten years, short-circuiting the compounding that was the intent of the original law. This was the first step in devaluing the Roth. The SECURE Act passed without any objections by people who should have known better.

[rarestia]

I work for a large multinational. I’m a member of their internal investment group. This news is not being received well by even the most liberal among the group. Let’s go, Brandon.

[Alberta's Child]

Bump for later. This author is not very sharp.

[Kaslin]

Maybe that is why he or she is anominous?

[CptnObvious]

I Thank God for Senator William Roth, without him I would be hitting the nasty Tax Torpedoes for decades to come.

I didn't know the ROTH IRA was from 1997. The Traditional started in 1974 and I think my company started with that in 1981. So this explains why I have so much in the Traditional. But more of the Traditional came from greed.

I regret SEVERELY not using the companies ROTH 401K when it came out for us in '98 .

I felt like I had to get that tax deduction in 1998 and did not get into the Roth until a few years later. That tax deduction is a real HONEYPOT TRAP as most do not understand that NASTY SOCIAL SECURITY CLAWBACK which may be on the other side depending how much you have in your Traditional.

Up ahead, When you turn 72 (used to be 70 1/2) you must take a Required Minimum Distribution (RMD) from your Traditional style IRA and for many that will mean 85% OF YOUR SOCIAL SECURITY WILL BE TAXABLE (The Tax Torpedo). Wish I had begun converting long ago like the article says. I Figure I've got five years of conversions to go.

If I convert it all at one time, my traditional IRA would be hit with horrendous taxes and the highest state taxes to boot. So by doing 5 over 5 years I can avoid the highest brackets.

The first year, I was able to cover the taxes in cash, thank God. Because if you cover the taxes from your traditional IRA, the taxes on that are nasty. 85% of my Social Security Income is getting taxed as well.

I figure to pay most of the income taxes in the second year and then after thtat will have to bite the bullet.

This way I can escape those nasty Tax Torpedoes for Decades to come.

[CptnObvious]

Oh and I forgot, I will be paying IRMA taxes on my Medicare through reduced Social Security for six years as well. UGH!

Those politicians were sneaky.

[Tell It Right]

For now this doesn't hit your Roth IRA if you're invested in mutual funds, ETF's, individual stocks, or individual bonds. (Unless you're one of the startup owners of the company you have stock in.)

This doesn't effect most of us with Roth IRA's
...
for now. They'll hit the rest of us the next time.

[Flick Lives]

... having obtained tax revenue up-front, they just can’t stand the idea that the Roth allows people to make a profit without having it taxed again. These proposals, if they become law, will be followed by another round, in which we will see the entire Roth framework destroyed.

—

This.

[Engedi]

Not only the SS 85% tax but you have to be careful not to go over certain income otherwise your PARTB will double or triple for the year you withdraw or convert funds.

[Engedi]

I just posted about that as well. They get you all the way around.

[bert]

Retribution........ salt your democrat neighbor’s lawn

He destroyed tour Roth IRA

[proxy_user]

The first IRMAA limit will be $94K for 2022, and the next one will be $118K. If you go over $94K, you will pay an additional $900. If you really want to pay, have a retirement income over $500K.

I always say, give me the income over $500k, and I’ll pay the tax!

[moovova]

Bkmk

[FtrPilot]

I am currently caught in the IRMAA trap. The big problem with IRMAA is crossing a threshold by $1 puts you into the next bracket. So, each year, I do a Roth rollover up to the next threshold.

Here's a link that explains IRMAA:

IRMAA Explained

[FtrPilot]

My bad...Here's the real link: IRMAA

[Mr. Jeeves]

The SECURE Act passed without any objections by people who should have known better.

That's a good one.

[kiryandil]

Then in 2019, Congress changed the law by enacting the deceptively-titled SECURE Act, which actually stands for “Screw Every Citizen Using Roth Equity.”

When I understood that the Roth was a Darth Vader "I am altering the deal, pray I don't alter it any further" arrangement, I passed.

[Alberta's Child]

That's exactly why I said earlier that the author isn't very sharp.

Back in the 1990s I worked for a small company with a 401(k) plan. The financial advisor who administered it also managed a separate IRA for me from a previous job. After the Roth IRA was established he began advising his clients to seriously consider conversions of their existing traditional IRAs to Roth IRAs to take advantage of the future tax savings written into the Roth IRA legislation.

As far as I could see he was giving one piece sound advice to anyone who would consider such a move: Only do this if you could pay the tax liability for the traditional-to-Roth IRA conversion out of your non-retirement assets; don't tap the IRA funds to pay the taxes.

After I rebuffed him a couple of times he asked me why I wasn't interested in doing a conversion with my IRA. I laid it out to him very clearly:

"You are asking me to give up tax deductions I already got from my original IRA contributions in exchange for a future tax savings that may no longer be there when it comes time for me to withdraw the money. There is nothing that stops Congress from passing another change in the tax code ten years from now that eliminates the Roth IRA tax exemption after I've already paid the taxes on the IRA conversion.

To his credit, he said he'd think about what I said and get back to me after doing some research.

The next day, he called me up with an interesting bit of news: From that point forward, he was advising his clients NOT to do conversions from traditional to Roth IRAs.

[1Old Pro]

(3) upon death, the account could pass to non-spousal beneficiaries who could let the funds grow tax-free during their lifetime.

This is a big one, a way to pass estate assets tax free, similar to life insurance.

[cgbg]

You did some excellent analysis there.

In my case I retired and then front-end loaded taxable retirement fund distributions during the Trump administration—I figured income taxes would go up at some point and I should take the distributions while the getting was good...that decision is looking better and better.