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Home › Forums › Financial Markets/Economics › What are backdoor Roth IRA contributions?
[quote=SK in CV]With the exception of the curtailing of interest deduction on consumer debt, none of them were in any way retroactive. Those changes didn’t change future tax benefits of current holdings. It didn’t turn non-taxable investments into taxable investments.
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I agree that there isn’t a great example of tax laws being changed in a way that takes a non-taxable investment and make it taxable. IRA/Roth’s and other retirement plans don’t have a long history either. It’s not like we lived through a time where the government has been desperate for cash and there were special tax exemptions that could be attacked while these plans were in place.
Look at the conversation about corporate tax loop holes or even something like prop 13, where proponents of changes say it’s not fair that people with money get a special tax break (corps benefiting from prop 13). Roth IRAs are likely held by a small minority of people that are comparatively rich to the general population. How long do you have before someone decides it’s not fair for you to get a tax break on a Roth IRA. Especially if you have considerable other wealth/income. I know they attempt to address that through the contribution side, but look at people trying to back door it. When does abuse get to a point where the government says F that and decides to change the tax implications of a Roth.
What if we do simplify the tax code such that all income is treated that same. Do you really think in a large tax change agreement like that they would carve out a special exemption for Roth IRA income. I think it’s far more likely that if we did get a radical overhaul Roth IRAs would just end up being collateral damage.
Eliminating special treatment for Roth’s in favor of a simplified tax code might fly sometime in the future. Broaden the base eliminate the special interest loop holes (if that means Roth’s get hit so be it).