Risky Roth IRA?

Question

Why should someone put money into a Roth IRA when there is no guarantee that the Congress will not take away the tax benefit in 10, 15, or 20 years? It taxed now when you put the money in and could be taxed again when it is disbursed in the future.

Answer 1

I think the US constitution would require that they only apply such a change going forward. Any money deposited before any change in the law would retain its tax-free status.

I take your point, but I think it is pretty unlikely, except in the guise of wholesale retirement account reform.

Answer 2

You must be confused about the Roth IRA. While your contributions are made with after-tax dollars, your investments in the IRA grows tax-deferred. After age 59 1/2, you will not owe any taxes on your contributions or the earnings (the gains) in the account.

Now, in all IRAs, there is an early withdrawal penalty of 10% tax if you make withdrawals before age 59 1/2. There are exceptions to this rule such as making a down payment of your first home (up to $10,000), paying for higher education, or if you become disabled or terminally ill.

Roth IRAs are not risky, its what kind of investments you put in it that is risky. Your Roth IRA can be funded by a mixture of things such as CDs, money markets, bonds, stocks, and mutual funds.

Answer 3

It's pretty unlikely that Congress would ever change this; if they did, then there is nothing stopping them from taxing your bank account twice. They do tax you on the earnings when you get distributions from your Roth but as far as taxing the investment funds, that would be a pretty fundamental change to how the tax code works, requiring a LOT of legistlation. All of that gets voted on. While I am sure it is possible, it's extremely unlikely. Kind of like how it's also possible that all our housecats join forces and take over the planet, or how robots would come to life and make humans their slaves.