Both the GOP and President Barack Obama are taking aim at tax-advantaged retirement accounts as a way to bring in more tax revenues without actually raising taxes.
Obama included a number of proposals in his 2015 budget released last week. Most of his ideas were also included in the 2014 budget -- and didn't go anywhere -- but one of them is new and could have an impact on the retirement planning of ordinary savers as opposed to people with millions in their 401(k) plans.
Obama's proposal would institute required minimum distributions, or RMDs, from Roth IRAs once savers turn 70 1/2 -- similar to the distributions that people must make from traditional IRAs and other retirement accounts. The proposal would also eliminate RMDs for people with $100,000 or less in their IRAs.
With traditional IRAs, savers have to pay ordinary income taxes on the money they take out. Roth IRAs have already been taxed, so taking an RMD could mean moving Roth savings from a tax-free account to an account where earnings would generate taxable income.
For many savers in Roth accounts, this change won't have much impact. If you have to take money out of your savings and spend it, you wouldn't pay any extra income taxes. Even if you put your RMD in some sort of cash account such as a money market fund, you're unlikely to generate enough income to affect your tax bill very much.
The people who would feel such a change the most are the ones who don't need to spend the money in their Roth IRAs and hope to leave the account to their heirs. Under current law, heirs are able in many circumstances to let the inherited account continue to grow tax-free over their life expectancy.
Together these rule changes would make Roth IRAs a much less attractive savings vehicle for people who have substantial retirement savings.
Are these changes likely to happen? Congress would have to vote yes, and that's unlikely. So if you're worried, don't be.