The Roth IRA is a great tool for the Middle class to ascend to a higher wealth level, if used over a long number of years. So this leads me to ask “Is the Roth IRA in Danger?”
I ask this question because from the government’s perspective, a Roth IRA is a great option as long as it’s not too popular! As more and more people start to use it, the government might start to miss the lost future tax revenue from the capital gains and dividends in Roth IRAs, especially when combined with the delayed taxes from 401K plans.
So what could the government do?
- Do away with the entire option. Of course those that exist would most likely be left intact.
- Change the rules so that the Roth IRA is no longer beneficial for the US population to use.
- Introduce the creation of a yearly fee associated with owning a Roth IRA, perhaps calling it a Retirement Existence fee.
- Spawning of a new Federal Sales and Consumption Tax to make up for the loss in tax revenue from the various retirement accounts.
- Special tax charged for each withdrawal from Roth IRA accounts, perhaps a set amount like $20 per transaction.
The possibilities for the government to tax us is only limited by the imagination of the taxing party in control.
Some would say, that the government wouldn’t do that because we wouldn’t re-elect the officials back into office, but hasn’t these past few years proven that argument incorrect? For example, look at the Cap and Trade Tax (which stealthily increases taxes on all americans), this tax is very unpopular with the majority of americans.
Party lines will do as they please, they are odd that way (especially when they blame their unpopularity on the other party after years of being in office)! It’s sad that the representative for each state don’t represent the people who elect them into office (kind of insulting for the state population too, it’s like of like them saying “you don’t know what’s best for you, evne those people who elected me in…“). This is why the previous seats that were held by the democrats were lost (even in traditional democratic states) and why Republicans lose elections when the become to Pro-life (What does Pro-life vs Pro-choice have with running the government anyway?).
Is the Roth IRA in Danger? I don’t know, but if the tax stream become to dry for the government, they may try to counter it in some way.
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Update (1/11/11): I wrote this article questioning if the government would somehow figure out a way to take away the loss of future taxes from Roth IRAs and other Retirement instruments, but that doesn’t mean that I don’t still use those vehicles! I have and contribute to both a Roth IRA and a 401K plan.