TAKING STOCK: Government hands on Roth IRAs?

Dear Mr. Berko: I'm 69 and retired, and I have an individual retirement account worth $628,000. Fortunately, we don't need the income from the IRA to support our living expenses. And because I have a $176,000 tax-loss carryforward from a business that went bust a decade ago, my broker suggested that I convert my traditional IRA to a Roth IRA and use the carryforward to pay the taxes. If I did that, I would make the beneficiaries our grandkids, who could enjoy the continued stock growth and stretch the Roth payments over their much longer lifetimes. Because their parents are "financial stupids" (your words), I need to change the investment mix to some Standard & Poor's 500 index funds and several no-load mutual funds. I would appreciate your recommendations. -BR, Erie, Pa. Dear BR: Fire that brokster, who is a blithering, brain-dead idiot and dangerous to your wealth. He should have "stupidity" branded on his forehead in large letters. You can't use a tax-loss carryforward to pay those taxes ... yet. Leaving a Roth IRA for your grandkids to grow tax-free over your lifetime and theirs is an expialidocious idea. Many folks have Roth IRAs because unlike the case with traditional IRAs, they're not required to take distributions at age 70 1/2. As of today, a Roth IRA can still remain untouched throughout your lifetime, even if you live to be older than Methuselah, and the income is tax-free. Today those who inherit an IRA (Roth or traditional) can stretch those payments over their lifetime. This permits most of an inherited Roth to continue growing tax-free for your grandkids. But that old gray mare ain't what she used to be, and that old Roth IRA we believed to be sacrosanct and immune to change may soon be corrupted by our government's insatiable greed for money. There are two proposals in the 2015 budget that are likely to be passed and may toss a grenade into many estate plans. 1) Next year, all Roth owners may be required to take distributions at age 70 1/2. So if you're moderately healthy with a normal life span, your Roth may be significantly depleted when you pass away. 2) The Obama administration wants to eliminate the ability of non-spousal IRA beneficiaries to stretch their distributions. This means that the assets of non-spousal beneficiaries of inherited IRAs must be fully distributed within five years of the owner's passing. Certain beneficiaries would be exempt, but the language identifying their status (the specifics are silent concerning children, grandchildren or other family members) is unclear. Seeing as there may be no "stretch" available, it doesn't make sense to convert to a Roth and pay the taxes for 2014, because the deferral rate when you die could be limited to five years. But consider yourself lucky, because other changes are a-comin' to finance the numerous new government initiatives, including the Affordable Care Act. Though the income from your Roth is currently not taxable, Congress may impose some kind of teensy excise tax on Roth distributions beginning in 2016. Some of us may recall when Hillary Clinton, in 1994, tried to pass her plan for universal health care. It was suggested then that the government could pay for a large portion of the costs by taxing this country's greatest and last nontaxed asset, the American retirement plan. There were proposals floating between Congress and the White House about 1) taxing an employer's annual contribution to all retirement plans and 2) taxing, at a reduced rate, the annual investment gains in our retirement plans. This Golconda is a treasure-trove of untapped wealth and could be a superb source of new tax revenues for our Congress. The combined value of America's qualified retirement accounts at the end of 2013-IRAs, pensions, 401(k) plans, defined-benefit plans, federal and state plans, and annuities-was over $22 trillion. This is an alluring stash that Congress won't be able to resist as it strives to pay for our growing social programs. (Remember that Social Security income was not taxable until 1984.) And most members of Congress would prefer to tax our retirement plans as an alternative to a value-added tax that's been proposed by their colleagues. -------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. ©Copyright 2014 Creators.com Published: Tue, Nov 04, 2014