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Mildly off-topic - Roth Conversions

Since the Federal government accounts on a cash basis, Roth conversions generate tax revenue "now," making the budget situation look better, and Roth contributions likewise generate more current tax than traditional IRA contributions. Same for 401(k)'s.

I don't want to wander too deep into comments that could be construed as partisan politcal, given the nature of this group. But I will say that Roth contributions and conversions amount to another form of "borrowing from the future" in terms of the U.S. government's fiscal situation. That much seems indisputable.

Reply to
Hank Youngerman
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Reply to
Wallace

Only because you're used to the traditional pretax accounts. I could just as easily say that the Traditional IRA and 401(k) delayed tax revenue that otherwise should have been collected. To put it another way, when these pretax accounts were introduced, didn't they, by definition, create a drop in tax revenue?

Joe

Reply to
JoeTaxpayer

The 2010 provision for moving conversion income to 2011/12 is worse than that. It was a gimmick to squeak that bill through the largely laughable budget rules. They desperately needed revenue in 2011/12. (If you look at the JCT budget analysis, it jumps off the page at you.) This provision was in neither the House nor Senate bill. It sprang fully formed from the Conference's forehead.

Phil Marti Clarksburg, MD

Reply to
Phil Marti

Exactly. The origination of Trad. IRA and 401(k) was a form of "saving for the future", and taxing present-year conversions is just a way of withdrawing some of those savings.

On the other hand, once in the Roth, tax-free earnings could be considered a permanent tax cut. In exchange, the government gets to limit your investment choices and gets an annual update (Form 5498) on what you've been up to (don't underestimate the value of that, when it comes to estate taxation, for example).

-Mark Bole

Reply to
Mark Bole

Or did they just put individuals on a par with those with deferred pension plans?

Reply to
Wallace

Deductible IRA's represented a loss of current revenue, and therefore are "scored" accordingly by the CBO. Roths represent a loss of future revenue, and are not scored as costing money if they don't cost anything in the next 10 years. As the budget process works now, Congress could pass a law saying that anyone who chooses to pay 25% more taxes for the next 10 years can pay no taxes for the rest of their lives, and it would be considered as increasing revenue and decreasing the budget.

I suspect that everyone reading this group, regardless of political views or affiliation, abhors budget gimmicks that have (barely) hidden costs in the long run.

Reply to
Hank Youngerman

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