What happens to Roth accounts if the income tax is repealed?

Question

I realize the speculative nature of this question, but I'm just curious if anyone has any expertise that might apply.

I currently have my retirement savings split between a traditional (tax-deferred) IRA and a Roth IRA. I am taking a year off from work and live in FL, a state with no state income tax. Now would be an ideal time for me to convert my traditional IRA to a Roth at a low rate of taxation.

My one concern (although I find this scenario very unlikely) is this: if the income tax is repealed in this country, will those of us who chose to pay tax up front for a Roth account simply lose all of that tax money that we've paid? Will those with traditional IRAs hit the jackpot as all of the sudden their tax-deferred accounts become tax-free? What stipulations, if any, would eliminate this seemingly unfair situation?

Answer 1

Nothing..Roths are best since its all your money forever. After tax dollars. The gov does not play with you like in 401Ks..

Answer 2

This is one of the issues that makes the "Fairtax" unfeasable.

Money in Roth IRAs would be taxed twice. It is taxed on the front end as the money put in to it was after tax money and it would be taxed again when you spend it.

The Fairtax will continue to be used as a political football by Huckabee and others but it has no real chance of passing. Many people hate to hear this but the "fairest" tax we have is an income tax. Like it or not......

Answer 3

Should that happen, you'd be screwed unless Congress made some provision for Roth holders. And traditonal IRA holders would hit the jackpot. One more reason that any repeal of the income tax is PURE pipe dream.

Answer 4

a distinctive team of taxpayers might %. up the tab. evaluate FL & TX: neither have a state earnings tax. yet, they the two have expenses. the money comes from someplace. In TX the middle type is crucified with real property tax so as that the wealthy can stay tax unfastened (the particularly wealthy - Bush - proceed to exist "ranches" zoned for greater value-effective tax). If the NJ take a seat is repealed a distinctive team will pay - that is all.

Answer 5

You've pretty much hit on it - handling existing accounts isn't described in the Fair Tax plan.

But the likelihood of it becoming law is essentially zero, so I wouldn't change anything I do because of that.

Answer 6

I can't answer your question, but I CAN tell you, that I don't think in the long run, Congress is going to allow those Roth IRA's to be untaxed forever. Which is why I haven't sucked up to open a Roth for either me or my husband.