US to eventually tax tax-free IRAs, 401ks says noted national columnist

It's interesting to speculate on what form that taxation may take - probably not straight up income taxes.

But note that it's purely speculation.

My first guess is that all IRAs and 401(k)s will get hit with a flat percentage of assets tax annually. We already have to calculate values of these accounts at the end of every year (ie. for use in computing RMDs). I wouldn't be surprised to see, say, a 10bp/yr tax.

But, again, it's purely speculation. The thing is that if such taxes come to be, it'll just be another factor we'd need to take into account and I'd be pretty surprised if it were a big enough tax to form a disincentive against continuing to maximize contributions to these things.

"Because that's where the money is." (Sutton. Kinda)

Well, just because the guy is published nationally, doesn't make his opinion any more valid than anyone else's opinion. And, frankly, apparently he doesn't know too much about tax issues, because 401ks are already taxed, and probably at a higher rate than they would be if the money were in a regular, non-tax-deferred account. Those capital gains that are hidden in your 401k will be taxed as regular income. It's too easy to speculate on the Roth IRAs, but a more reasonable (to me) prediction is that we will no longer be able to contribute to such an account, so that all retirement accounts will have the same tax treatment at distribution.

Elizabeth Richardson

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A similar story appeared in Barron's as much as a year ago. I didn't give too much credence to that article either. Joe

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My assumption is that everything I have will eventually be taxed (one way or the other) and that I will end up with less.

Meanwhile I am content with two thoughts:

1. Regardless of how much tax I ultimately have to pay, the more I start with (gross), the more I end with (net). So consistent with a pleasant lifestyle now, I focus on good savings techniques (cost control and diversity) and pay little or no mind to the tax aspect.
2. While the future tax system is unknown, I appreciate and use whatever simple and easy opportunities for tax deferral are available to me today. I'll deal with tomorrow when it comes.

-HW "Skip" Weldon Columbia, SC

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Agreed. And I would hate to be the politician that tells America we're going to start taxing your Roth! Then again I would hate to be a politician at all ;-)

Remember the original intent of these tax incentives were to control the actions of Americans. The same thought process applies to mortgage interest deduction and munis, fo rexample. Unless the gov't no longer wants to motivate us to save for retirement, it is counterintuitive they would directly attack retirement accounts. It would also likely create such a level of distrust amongst citizens that the gov't would lose it's motivational power all together. Nobody relies on the word of an "indian giver" (pardon the expression).

More likely (but purely speculatively) the IRS will use indirect methods (lowering phase outs, altering AMT rules, lowering exemption amounts, delaying age based benefits, etc...)

I would be very surprised to see existing Roth's directly taxed. Even the symantics are extremely complicated. How would they prevent a "bank rush" on Roths when the legislation is proposed before Congress?

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The problem is that often such articles are self-fulfilling because they give politicians, always eager to part our money from us, ideas about doing exactly that.

It's like in Brazil, where a congressman pushed an idea to have a single tax over financial transactions replacing all others and it ended being added as yet another tax...

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