I am afriad of the future of the Roth.

[Guest beerzkool]

I am a bit concerned about the beauty of the Roth. Right know I can pay the taxes upfront on a Roth and withdraw later tax free.

My fear is that Congress may change the rules in 30 years. Is there a 100% guarantee that I can withdraw my Roth tax free in 30 years?

Sometimes I feel I should switch solely to my 403b because I know I can get the tax deduction for this tax year....I can't get screwed by Congress. I am afraid I will get screwed by Congress in 30 or so years because they might change the rules on Roths.

Anybody out there that know the answer.....what do you think?

gracias,

Ethan

[John G]

No one can accurately answer your question. My take on the likelihood of drastic changes to tax Roths is that the probability is extremely low. There are now millions of people with Roth IRA accounts and that number continues to grow. If Congress were to reneg on taxes, they would alienate a very large number of voters who already have paid taxes on the contributions and/or conversions. Trying to tax anyone twice on the same amount would be a gross violation of the fragile trust between the government and the people. Would you want to run for Congress after making that change? Folks that think ahead to invest for their future are already more likely to vote than the average citizen. A tax law change would bring them out in droves on a basic "fairness" issue.

If such a tax change occured, more than just a few cases of tea would get tossed about. The Jeffersonian view would be towards revolution.

As the number of Roth account holders grow, the safety of the existing accounts grows. Congress could much more easily decide to phase out the Roth, leaving all existing accounts grandfathered. So far, the trend has been in the other direction, an expansion of the max amount that can be set aside each year.

Coca Cola learned a big lesson when they pulled a surprise in changing the formula for Coke. And all that fuss was about a carbonated beverage. I doubt Congress would ever try a direct assult on the tax status of Roths. Tax payers take money a lot more seriously then soda formulas.

[MGB]

I think that anything could happen. The views towards taxation of retirement savings continually shift. In 1986 they imposed an additional 15% tax on retirement payments that were "too big" meaning that if you had good investment returns and/or had large pensions from multiple sources, they wanted to take it. That provision was rescinded in the 1990s.

A lot of it depends on public sentiment in the future. Note that we will have a major budget crises 20 to 30 years from now because there will be so few workers compared to the number of total consumers. The tax revenues required to sustain current programs will not be able to be borne by the workers. So, they will be looking at other sources for taxation (we could assume they would cut programs, but the size of cuts needed are not feasible). The twist in this is that those that vote the most will be the same ones that they will be looking at to tax - the retirees. It then comes down to how the Congress reacts to this dilemna.

Note that even though the financial press thought that Toby Roth's getting the Roth IRA through was a great political victory, it wasn't seen that way by his own constituents. He lost his next election and is no longer in Congress.