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Is your Roth IRA in jeopardy?

By Jennie L. Phipps ·
Tuesday, March 11, 2014
Posted: 3 pm ET

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.

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Roy Sullivan
September 14, 2014 at 7:51 am

Where is the groundswell of opposition to the administration's 2015 budget plan to summarily require Roth IRA RMDs for holders over 70 1/2? Many have based their secure retirement on the original Roth IRA advantage of tax-exempt growth and access.

E E Bond
April 21, 2014 at 10:12 am

Same thing happened to EE savings bonds. For years we would buy them at work and you could later defer tax gain by converting EE bonds to HH bonds and get a twice a year payout and pay only federal tax on the payout amount.
Treasury Sec. Snow got rid of HH bonds so the promise of HH bond conversion, just like the no RMD on Roth, is history. Do NOT re-elect anyone.

Tim Russell
March 17, 2014 at 12:55 pm

At the start of the article it was stated both the GOP and POTUS were taking aim at tax-advantaged accounts and then all that was spoken of was the white house plan. So what is the GOP plan?

Jim T
March 12, 2014 at 2:08 pm

Be careful who you vote for this time around. Remember that
Hillary said during her last Primary campaign that IRA accounts and 401K's were the reason Social Security was in trouble--too many people escaping taxation. How's that for leadership and logic!!!
As a financial planning professional I knew this day would come from day the ROTH was unveiled. If they can create it with the stroke of a pen, they can take it away too. NONE of my clients ever said they thought the ROTH would go untaxed forever, on the contrary, they all predicted it be taxed sooner rather than later. Remember who you are talking about....POLITICIANS!

March 12, 2014 at 11:14 am

Susan, you did read the last sentence...didn't you. Partisan much?

Old School
March 12, 2014 at 10:58 am

Well, this what are current "Genius" can come up with.
This is total nonsense. Politicians from the top on down are a product of their life experiences. Those that had "real" jobs have better ideas, and those that were "community organizers" don't have any. If the current "regime" did absolutely nothing they would be doing a lot less harm than their doing now.

March 12, 2014 at 9:54 am

So you write an article giving everyone reason to worry -- and then in the last line you say that everything you said was unlikely to happen and no one should worry.

Slow news day...

March 12, 2014 at 9:27 am

Impeach Obama and vote out all elected federal office holders in the coming elections, in the primaries when and where possible. Replace these vote buyers with people who will carry out the duties of the House or Senate responsibly and leave D.C. with a maximum of 12 years total in Congress. No more life long career politicians. The stated Roth idea is total rubbish.

Tom Landis
March 12, 2014 at 8:21 am

(U) Must be in the same category as those who complain about federal deficits and nothing being done about it. Also, this does do something about inequity...

susan harbor
March 12, 2014 at 7:55 am

I'm sick of this idiot POTUS. People who have worked and saved during their entire working career, and who, in good faith, put the money into a Roth IRA are now going to have to pay the price for the current POTUS' ineptitude.
How's that recovering working' for ya?

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