Roth IRAs may be taxed in the future (NYT article)

=I pulled out my Roth IRA money tax-free and used the money to pay off a mortgage.

That doesn't seem to be a wise decision to me. What was the interest rate on your mortgage? What was the anticipated returns on your Roth IRA investment?

-- Ron

The IRS would need to keep track of the original contributions to determine how much to tax gains.

-- Ron

I've been thinking this for some time. And, why limit it to cap gains rates? Certainly at least the "wealthy" could afford "just a bit more".

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wouldn't YOU need to keep track? And if you didn't, the IRS would figure it was all gain?

One radical economist Teresa Ghilarducci periodically testifies before Congress about the government absorbing all private retirement accounts in the social security system. Part of the reason is to bolster governement finances. Another reason is that working invest stupidly and in too small amounts for efficient returns. Some other countries like Argentina have done this.

The regular IRA keeps track of all tax paid contributions using the

-- Ron

yes, and the taxpayer fills out that form. Failure to do so would, I assume, result in the IRS treating it all as pre-tax contributions.

Folks need to track their Roth contributions anyway if there is any chance that they're going to take distributions before retirement.

Contributions may always come out tax free, but if you take out more than you contributed (ie. extract gains as well as contributions) through a non-qualified distribution, you owe taxes and penalties on those gains. In order to disinguish what part is taxed and penalized, you need to have been tracking your basis.

You'll see in the instructions for the form 8606 - which is used when you take distributions from the Roth - that it expects you to know the sum of your contributions to the Roth.

Track them. Just as you track the non-deductible contributions to traditional IRAs.

It might be noted that Canada has no mortgage interest deduction, and economic disruption has not occurred. The housing market has been robust for many years despite the absence of that deduction, and the recent downturn has been less than in the US.

They also didn't have NINJA (no income,no job or asset) loans, sub-prime, zero down, teaser rates either.

Canada's income taxes are lower than ours, too. think that might help?

I believe that Canada's income taxes are in fact slightly higher than those in the USA. The difference is not huge. I file returns in both countries,and because of tax credits it comes out about the same as if all my business were all in one country or the other.

That is true, and those things have made a big difference in the stability of the banking system in the two countries. I should mention that the mortgage interest deduction in Canada still applies to property held for investment purposes, just like in the USA. But there is no deduction allowed for personal residences.

That makes a significant difference in financial planning for homeowners. A high priority in Canada is to pay off the mortgage on your own home as soon as possible.

FWIW, my intention (now, clearly somewhat ambiguous in my earlier posting) was that *having* a mortgage interest deduction available is disruptive. And that, if we get rid of something, it should be *that* rather than getting rid of the deductions associated with retirement accounts.

But that's not going to happen. And neither, in all likelihood, is the loss of preferential treatment for retirement accounts.

I googled and found their top rate to be 29%.

hmm, reading a bit further, the provinces and territories are rather greedy. maybe, never mind.

Federal income tax rates top out at 29%. Territorial/provincial tax rates add as much as another 17.95% (New Brunswick on incomes over $116,000) to that. Most territories/provinces have marginal rates in the 12-15% range on moderate to middle incomes (ie. 30,000 to 100,000 or so).

Plus there's a federal sales tax *and* provincial sales taxes which, together, add up to an average of about 13%. (GST/HST)

In general, Canadian income taxes are, in fact, higher than US.

FWIW.

Actually, having mortgage interest deductions for homeowners helps put ownership a bit more on a par with renting, since landlords get to deduct their interest payments.