IRA dilema

They should create Roth IRAs and not put any more money in the traditional IRAs.

The traditional IRAs don't have to be converted.

In a zero (or minimal even if not zero) tax situation who wouldn't want to convert at least some of a traditional IRA to a ROTH? If you DON"T do it, the traditional IRA will grow, and they'll end up paying taxes on the appreciated value, VS if they convert to a ROTH now - even paying just a little in taxes, that money will then grow tax free.

I would convert to the point you start having to pay taxes, then I would do the math - I think you'll find even paying a small amount of taxes (because you'll be in a low bracket) is worth while because it's better than paying a larger chunk of taxes later assuming it appreciates at a reasonable rate of return.

Just my .02

I trust that those who are considering Roth over deductible 401k or who are considering Roth conversions are keeping one eye on the talk of some form of consumption tax.

Contrary to what I expected, such talk seems to be increasing rather than going away.

-HW "Skip" Weldon Columbia, SC

Uncertainty over which way the federal tax system might be restructured is a good reason to fund a 401k (or regular IRA) and a Roth IRA... and a taxable account while you're at it. (I knew they'd find a way to tax my Roth account.)

Bob

It will take AARP and others about 4 milliseconds to alert the entire population to the fact that a shift to a consumption tax means double taxation of all non-tax sheltered savings and invested capital. I have a hard time believing that a shift to a consumption will ever happen without a deduction for already taxed assets. It is an issue that is too easy to understand for congress to hoodwink the public.

Keep in mind that a consumption tax can be implemented many ways the most likely of which is not a sales tax. A consumption tax would likely leave much of the current income tax system in place, but allow for unlimited tax sheltered savings. The idea being that your "consumption" is all of your income that you didn't put into a tax-sheltered account. So taxable income would then be Gross Income less money deposited to tax sheltered accounts, less deductions (although under this system I would imagine that deductions will be greatly curtailed).

-Will

Agreed. Another alternative is a VAT, which is an invisible consumption tax. I was referring to the rumor which continues to appear that George Bush would like to completely replace the income tax with a consumption tax, most likely a national sales tax. Alan Greenspan also favors a move to a consumption tax on purely economic grounds. Greenspan's goal is to increase the savings rate. He does not address the political implications. IAC, we are off the forum's topic. :)

Greenspan stated last week that he believes a VAT will harm the economy.

Hmmm, I've also read that W favors a consumption tax, but that he favors the system I mentioned before as opposed to any type of sales tax. Supposedly a sales tax fails his simplicity criteria (he's also trying to simplify taxes). I think the article I read describing this was from the Wall Street Journal and I thought I still had it around, but of course I can't find it now when I need it.

Actually, last week Greenspan came out in favor of a combination of an income tax and a sales tax.

economy.

I would consider that to be an endorsement. :-)

Having low interest rates isn't a very good incentive to save.

Right. No point in saving money if it's still going to be worth about the same amount when you spend it. Might as well wait to save until the money you're saving will be worth far less when you need it. I mean, really. I thought a low interest rate environment only happens in a low inflation environment, and low inflation is what we want.

Elizabeth Richardson

Expected inflation is one component of the interest rate. The other two are the real riskless interest rate for the period in question, which is low if demand for debt securities is high, and the the risk premium, which is low if there is very little risk that the borrower will not repay the loan (for example federal government debt is essentially riskless).

If demand for debt securities is very low because there are better investments available you can have high interest rates with low inflation.