IRA Financial’s Adam Bergman discusses how the government can change a lot of the attractive features of the Roth IRA.
In his most recent podcast, Mr. Bergman discusses progressive democrats and the Roth IRA. He explains the recruitment plan and what may become of it. There has been no mention in changes to the plan as of yet. However, progressive democrats, such as Senators Warren and Sanders, have spoken about being more aggressive in taxing the rich. What may this mean for the Roth IRA? Mr. Bergman explains in this podcast.
What is a Roth IRA?
A Roth IRA is an individual retirement account that is funded with after-tax dollars. Unlike a traditional plan, there is no upfront tax deduction. Instead, all qualified withdrawals are tax-free. It’s an important retirement savings tool for many Americans. Instead of taxes being tax-deferred, they are paid before contributing to the plan. This is allows investments inside the account to generate tax-free income during retirement.
Roth IRAs have additional features that make them very attractive to investors. First, there are no required minimum distributions. Unlike the traditional IRA, where funds must start being distributed at age 70 1/2, Roth funds never have to be withdrawn. Therefore, if you don’t need the money, you don’t have to touch it, ever. The funds continue to grow on a tax-free basis and can then be left to your heir(s) untouched. Note that the SECURE Act may limit the so-called “Stretch IRA.”
Next, there is no age restriction to contributing to a Roth. As long as you have earned income, you can contribute to a Roth IRA. Currently, you cannot contribute to a traditional IRA once you reach age 70 1/2. Again, this is something that will change when the SECURE Act passes through the Senate.
Lastly, there are no limits to converting traditional funds to Roth funds. If you have amassed a large IRA and wish to convert it to a Roth to avoid RMDs, you may do so. You simply pay the taxes on the amount converted during the year(s) in which you do so.
Progressive Democrats and the Roth IRA
What do progressive democrats have to do with the Roth IRA? Both Elizabeth Warren and Bernie Sanders have introduced their version of a wealth tax. The tax, aimed at the super-rich, is their way to spread the wealth to all Americans. The extra tax would help fund programs such as health care and higher education.
The Roth IRA is something most of the wealthiest Americans utilize. Just look at Mitt Romney’s Roth IRA balance. These super-rich people will never need their retirement funds to live off of. Therefore, they can allow the accounts to grow to insane amounts and then pass them on to their children. Mr. Bergman speculates there may be a cap on Roth IRA savings if a progressive wins the 2020 Election. He goes even further and thinks the Roth IRA may be abolished in 40 or 50 years. Obviously, this is not fact and just one man’s opinion. However, the thinking is that “the left” will look for more and more ways to limit the fortunes of the super wealthy.
What Should You Do?
A Roth IRA remains as one of the best retirement savings account out there. If you fund one, continue to do so. If you don’t, you should look into starting one. As he mentions in the podcast, there are no current plan to change the Roth IRA. However, the government has made big changes before. For example, prior to 1983, Social Security benefits were not taxed. There are few people alive today that remember getting tax-free SS benefits!
Could the Roth IRA change if a future president decides it’s best? Certainly! The SECURE Act features legislation that is great for most Americans. On the other hand, the limitations being placed on the Stretch IRA are not favored by most. As always, Mr. Bergman will continue to keep an eye out on any legislation that might affect retirement savers.
Get in Touch
Have any questions about progressive democrats and the Roth IRA? Feel free to reach out to Mr. Bergman at 800.472.0646. You can also fill out a contact form and we can get in touch with you. Also, be sure to check out all of our old podcasts on our SoundCloud page! As always, thanks for listening and have a great day!