Slott Report Mailbag: Will Congress Renege on the Roth IRA’s Tax-Free Deal?

Thursday, March 14, 2013

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

We understand the public’s apprehension with those in Washington, D.C., and this week we received many questions on recent Congressional action and what may be in store for the future. This week’s Slott Report Mailbag examines two issues Congress has not taken a stand on (and in our opinion won’t for fear of public outcry and backlash) – the Roth IRA’s tax-free distribution power and the Stretch IRA.  As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

Ed,

I have read your books and watched a couple of your seminars. It made sense for me to convert our IRAs to Roth IRAs, which we did in 2010, and paid the taxes in 2011 and 2012. Unfortunately, I am reading and hearing on an almost daily basis that the government is going to start going after private retirement accounts.

In your opinion, how safe are our Roth IRAs from some type of government interference? It would certainly seem unfair to tax Roth IRAs again since the contributions have already been taxed.

Thanks,

Gary

Answer:
One of the reasons that some people won’t convert their IRA money to a Roth IRA is that they don’t trust the government to keep the tax-free deal. While Congress has the right to change the rules, if they ever did, they would likely grandfather or exempt existing accounts from the new rules. In addition, the only funds in a Roth IRA that could be taxed would be the earnings in the account.

2.

We are considering the “Stretch” process for the future of our IRAs. Does it look to you that this may be eliminated by Congress? Also, who will enforce and carry out our stretch wishes when we’re gone?

Answer:
The stretch process for taking death distributions from retirement plans using the beneficiary’s single life expectancy is in the tax law. While we cannot predict the future, it seems highly unlikely that Congress would eliminate it. It is up the beneficiary of the account to follow all the IRA rules once they inherit the account.
 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Post Views: 1
Posted in: , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.