Planning for 2010 and Roth IRA Conversions

[Mook]

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Also, I can easily see Congress allowing taxation of Roth distributions in the future. I can see them making distributions mandatory, then looking at what this does to your gross income. If it is over a certain amount, hello taxes. It would be started with the rich, then moved down through the brackets over time. This is similar to how social security income is taxed today.

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Remember something important. There is only one reason these conversions are being allowed at all, and it's this: Uncle Sam doesn't want to wait 20, 30, or 40 years to get his grubby paws on his share of your IRA accounts. He wants those tax dollars now.

And because any windfall so obtained will be instantly spent by our brain surgeons on the Potomac, there is zero - read none, zip, nada - doubt in my mind that at some point in the next 30 or so years, the gub'mint will begin taxing distributions from Roth IRAs ... probably in a very similar manner to that envisioned above. The tax will kick in only above a certain income level, though, so politicians can stand up in front of the cameras and claim "this change only affects the rich".

I'm mentally prepared to lose 40% or more of my traditional IRA distributions to taxes a few decades hence (assuming tax rates will have to increase to plug the gaping hole in our country's books). What I won't be able to stomach is paying "only" 28% on a Roth conversion now, and then being penalized for my financial success to the tune of a further 25 or 30% when I finally get around to withdrawing that money. No, thanks.

Mook