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Could Congress abolish the Roth IRA?

Q. Is it possible that Congress could abolish the Roth IRA? I heard this from a fairly knowledgeable person and I hope he is not right.

– I hope not

A. This is speculation and we would like to know where your friend heard it.

It is certainly something that would bother many investors.

Jeanne Kane, a certified financial planner with JFL Total Wealth Management in Boonton, said she doesn’t think the Roth IRA will be abolished, but that doesn’t mean Congress won’t change the way it works.

She said Roths has recently gained a lot of attention ProPublica report who found that in 2019, there were more than 3,000 people with Roth’s IRAs worth $ 5 million or more.

For example, the report states that Peter Thiel, co-founder of PayPal and technology entrepreneur, had a $ 5 billion Roth IRA.

Senator Ron Wyden said wealthy investors have managed to “circumvent the rules to thrive and basically misuse tax-subsidized accounts with expensive accountants and lawyers. This increases the extremely high level of pre-existing pension inequalities between pension and German pensions. ”

“Roth IRAs are designed for middle-income Americans, not rich Uberis,” Kane said.

They are income restrictions to contribute to Roth IRAs.

You can contribute $ 6,000 per year plus $ 1,000 in compensation if you are over 50 years old. Those who are married who file a joint application can contribute if the income is less than $ 198,000, and the contribution limit is gradually lifted between $ 198,000 and $ 208,000 in income. You can’t contribute if you have more than $ 208,000 in income, Kane said.

She said Roth IRAs are a fantastic means of saving because you contribute dollars after taxes money grows tax-free for the rest of his life.

“It’s a winning thing for savers and the U.S. government,” she said. “A saver pays taxes today and never has to pay taxes on that money again. The government received taxes today. These tax dollars help fund current government spending. ”

This can be compared to a traditional IRA, where your contributions grow by tax deferral. The IRS gets your money only when you withdraw it at some point in the future, she said.

Kane used an agricultural analogy.

“Would you rather pay taxes on seeds or crops?” she said. “Paying seed tax is what you do with the Roth IRA. Paying crop taxes is what you do with a traditional IRA. ”

She said the Roth IRA and Roth 401 (k) plans are popular savings vehicles. It’s here account which is currently on the Committee on Domestic Ways and Means – Ensuring a Strong Retirement Act 2021 – that would encourage Americans to save more and make it easier for them.

“The bill wants to increase the types of accounts so that Roth’s contributions include SEPs and SIMPLE IRAs,” she said. “It also recommends that employers be given the opportunity to ensure adequate contributions on a Roth basis in relation to the taxes allowed today.”

If the government is concerned about higher earnings taking advantage of the Roth IRA, it could eliminate them rear door IRA.

“Here you are making a traditional contribution to the IRA. Then you turn a traditional IRA into a Roth IRA, ”she said. “You pay tax on the amount you convert to get the government their tax dollars. However, this is a way to enable higher earners bypass income restrictions. ”

It could also choose to limit contributions to the Roth IRA if the value of the bill is too high, she said.

“Congress could also impose the necessary minimum allocations on Roth IRAs or include distributions to Roth IRAs in the modified adjusted gross income when calculating social security benefit tax or Medicare premium surtax,” she said.

Email your questions Ask@NJMoneyHelp.com.

Karin Price Mueller writes Bamboozled column for NJ Advance Media and is the founder NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly e-newsletter.