At the conference I recently attended, one of the speakers brought up an interesting point about Roth IRA’s.
As you may know, Roth IRA contributions are made with after-tax dollars and are allowed to grow income-tax free as long as you, or possibly your children or grandchildren, own the account. With that in mind, many Traditional IRA holders are taking advantage of the current low income tax rates, paying income tax and converting their pre-tax IRA’s to Roth IRAs.
So what is the problem?
According to the speaker, government has mortgaged their future. With Traditional IRA accounts, they are guaranteed a steady stream of revenue. When a pre-tax IRA account holder turns 70 ½ they are required to begin taking taxable distributions, thus making income tax payments. In the future, with the majority of Traditional IRAs converted to Roth’s and new money invested in Roth’s (many company 401(k) plans now offer Roth IRA options as well) the government will no longer receive steady income from retirement accounts.
So what will happen to the Roth IRA?
The government, needing money, will change the rules. At the very least, earnings on Roth IRA contributions will become taxable.
For now Roth IRA’s remain a good deal, so take advantage while you can.