<p>I wonder why you would have to keep a basis for the Roth, if there is no tax liability? Maybe if you withdraw early, so they can hit you with a tax penalty?</p>
<p>I can barely look at the form. I loathe the whole tax filing thing sooooooooooooo much. It’s not even the paying of the taxes that drives me crazy. It’s finding all the records, spending days tracking things down, and then after all that, you still write a check for more than you expected. Last year was the first time with an accountant. Didn’t save any money, but at least they filed. Still had to find all the receipts and the records. And I still haven’t filed yet for 2013.</p>
<p>I love having a CPA and his assistants help us so that we file correctly and on time. It makes me very happy and Neither H nor I want to do the work. </p>
<p>Yes, we still have to gather everything but the assistants double check it against prior years and ask us for anything missing. It gives us peace if mind. </p>
<p>They began to tax social security out of blue and quasi-tax municipal bond interests. I don’t see anything different in restricting tax benefits in Roth. They won’t tax original amount in Roth itself but everything else is a fair game. I say that as someone who paid the tax upfront to convert to Roth. The present proposal is modest. It limits the total amount in Roth to $3M and heirs have to take distribution in 5 years. My guess would be before reducing SS benefits, they will do something with Roth. </p>
<p>@iglooo, I’m as much a capitalist as the next person, but if they have to raise money somewhere, I would bet that most people with a Roth are in better shape to take the hit than the average SS recipient. </p>
<p>So much of politics is kicking the can down the road – in NJ and elsewhere, they’ve made pension promises that are undeliverable. </p>
<p>Property taxes are through the roof. The state doesnt fund its pension obligations. The cost of living is very high. When people on the west coast decide they want to visit the east coast, they want to go to NYC, Vermont, Maine, Massachusettes. I never hear, "I want to go on vacation in “New Jersey”.</p>
<p>Roth is not a product of capitalism anyway. You make money there thanks to rules, not because it produces anything. I agree with you that they should tax roth before SS.</p>
The southern Jersey coast is actually very nice, my family has been vacationing there since before I was born. Unfortunately I am not going to get there this year. </p>
<p>@iglooo, has it right. When I commuted into NYC, I spent 40 minutes on a train reading the paper or talking to my friends. When I got into Penn Station, I had a 15-20 minute walk (I hate subways) to work. That is why we lived in NJ. I lived near New Orleans once, which I found very corrupt. NJ can give NO competition in that regard. </p>
<p>“They won’t tax original amount in Roth itself but everything else is a fair game. I say that as someone who paid the tax upfront to convert to Roth. The present proposal is modest. It limits the total amount in Roth to $3M and heirs have to take distribution in 5 years. My guess would be before reducing SS benefits, they will do something with Roth.”</p>
<p>I guess they won’t be able to call it a Roth anymore then, because the non-taxable aspect is the entire point of a Roth. Perhaps they can name it after a politician who is a liar, I have a few suggestions. I’m curious how they can limit an amount in a fund, confiscate everything above it? Or say that distributions are required (and taxed above that)? If so, of course people would take money out of it before that point.</p>
<p>I suspect the first thing they would do is means test SS, before reducing benefits.</p>
Taxing some of your SS benefit based on other income is a form of means-testing.</p>
<p>Means-testing in general is a pretty difficult task, because it is quite difficult to objectively determine how much you have. How much is any given piece of real estate worth, for example.</p>
<p>I could see something like “add up the value of IRAs, 401Ks, and the NPV of pensions, and reduce SS benefits by X% of this amount every year”, where X is something small like 1 or 2%.</p>
<p>This information is easily determined and should be fairly unambiguous. Probably political suicide though.</p>
<p>^Because it won’t affect your personal case? That’s a great solution, let no one take a hit…. Or hit the rich who are richer than me or hit the poor who are poorer than me.</p>
<p>That’s for now. Who knows what they will come up with in the future? They are incluing tax-free muni bonds interest income to calculate tax on SS income. Some people decided to take the lower interest rate of munis because of tax benefits but than the law changed and they have to pay tax on their SS benefit. That’s kind of fair since it’s well-to-do who have munis.</p>
<p>“Taxing some of your SS benefit based on other income is a form of means-testing.”</p>
<p>That’s true. Some people are only getting 60% (or less) of their ss benefits. It would be easy for them to not even means test, but income test. If you receive over XX in income, you can’t collect ss for that year. I don’t think that would be political suicide, they would just make XX a number that people think will affect someone else, and lower the number every year insidiously (or not raise it for inflation), until before you know it, it’s not just the wealthy getting hit but the limit, but the upper middle class. Kind of like the AMT.</p>
How did you figure this? A max of 85% is taxed, the highest incremental rate is 40%-ish, means at worst you are netting 66% (1 - 0.85x0.4), and that’s people making half a million or more a year.</p>
<p>To busdriver. It took me so long to type I didn’t see your post was ahead of mine. Maybe it was a bit pointed. I just get tired of people pushing their interest as if it’s a solution. I’d like to protect my interest, too, but I also realize everyone would like to protect their own interets which is likely in conflict with everyone else’s.</p>
<p>Roth was never meant to be a tax shelter for the haves. It was to encourage lower tax income group to save for retirement. Was it 2010 law that changed that and allowed backdoor? If you think about it, backdoor roth is oxymoron. If you allow backdoor why shoudldn’t allow direct contribution to roth?</p>
<p>“To busdriver. It took me so long to type I didn’t see your post was ahead of mine. Maybe it was a bit pointed. I just get tired of people pushing their interest as if it’s a solution. I’d like to protect my interest, too, but I also realize everyone would like to protect their own interets which is likely in conflict with everyone else’s.”</p>
<p>Specifically, what are you talking about? The tax changes the I mentioned would affect me. There are a number of tax changes that I would support that would not be beneficial to my family at all.</p>
<p>What I do not support is when they change rules that people have structured their finances around, and make it retroactive to what people have already done, and cannot change. I don’t object to changes that affect future behavior.</p>
<p>“How did you figure this? A max of 85% is taxed, the highest incremental rate is 40%-ish, means at worst you are netting 66% (1 - 0.85x0.4), and that’s people making half a million or more a year.”</p>
<p>There are several states that tax ss, so if you add in the federal and tax, I believe it could be approximately 60% net, or less.</p>