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|Subject: Re: Roth IRA Contriubtions & Conversions||Date: 2/2/1998 7:11 PM|
|Author: Kilmarnoch||Number: 1598 of 78032|
<<I think anyone who is *planning* for their retirement is not going to take too much of a tax bracket reduction after retirement. Most people who care what happens to themselves after retirement have a large amount of money saved away outside an IRA.>>
orangeblood ASKED about the above,
<<Why do you say that? By outside an IRA, are you referring to 401k?>>
I said that because I guess most people have not been putting away 2000 a year for 40 years, and would really *need* to have some additional fund to live on after retirement. I was thinking of both 401k and other work related retirement plans (pick a number). As well as just taxable savings, basically an emergency fund available throughout their life (available before 59 1/2 :), something that wasn't tied up in red tape.
The phrase "people who care about what happens to themeselves" was uncalled for... too harsh. I was being too idealistic... I'm sure many people care what happens to themselves but haven't actually suceeded in saving for retirement, (as tc0001 points out below). The phrase "large amount of money" is way too vague.
<<Have you thought about what is going to happen to the tax rates when SS becomes a problem? Are you expecting tax rates to go *down* long term??? >>
and Pixy REPLIED,
<<Another point we can agree on. Rates will go up. How? Who knows. Watch for the worst in the way of a flat tax, value added tax, or combination. In that case, we'll all feel the crunch.>>
then tc001 REPLIED to both,
<<I can see the basis of these comments, but cannot agree with the conclusions. First, everyone cares what will happen to themselves during retirement (excluding some type of self-destructive mental illness), but I think, statistically, the numbers on American savings, in or out of an IRA, shows a different picture about how they are planning for it.>>
Very valid point.
On the tax issue, I think you're right that SS tax is only on worker earned income. I didn't write out the thought: I read the work force is going to be so small compared to the retired SS population around 2025 that SS tax would need to be in the 50% range to keep the current system afloat. I have no refernces for that statement, so it isn't a "fact". Using that as a internal basisi of thought I've expected funding for the SS system to come out of other tax sources ... since currently the biggest tax base is personal income tax, I figured that will be the first place they tap.
<<Fine, you say. Let's assume that the SS mess will be fixed by taxing all income and not just earned income.>>
Since the "simplest solution" would to just raise the current tax brackets, that's what I think will happen. They would need to specifically rewrite the Roth IRA laws to make that taxable income (yeah not a challenge if you hold the pen :), if they over look that exisiting Roth's will get a big immediate bonus over traditional IRA's (when the brackets move up). If they turn Roth's into taxable accounts, won't they start tapping other sources of tax deferred income (401k, traditional IRA, etc)?
<<Finally, the alternate tax method arguement about some type of consumption tax is thrown in. Once
again, does this make a Roth IRA distribution better or does it really argue against the Roth?>>
Why would they wipe out the current tax system to put another in place? They would take an enormise risk removing the current income tax system and replacing it with a sales tax system at the very time they *need* to increase renevue. I was thinking they would make a national sales tax *AND* continue to do income tax... tax money on both ends, in and out. ...means more revenue right? =)
Switching from one means of taxing to another will cause short term chaos, gradually turning up rates on one form while reducing rates on another is the safest way?
*IF* they did both forms of tax, Roth and traditional IRAs would be on the same footing they are now. If they replace income tax with sales tax *every* tax deffered, tax free, reduced tax investment would suddenly be much less valuable... Roths would be hurt the hardest (no doubt). I think there would be short term financial chaos as people transfer their money from formerly tax-exempt investments into higher yielding (formerly taxable) investments.
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