<p>Why have Roth, selling it on the principle that it’s earnings are tax free and then go back and tax it. Ridiculous is what I think. We’ve already have IRA, 401K for that very purpose. At least with these financial instruments, you get a tax deduction.</p>
<p>Where did Igloo say prior gains should be taxed?</p>
<p>Your explanation is the problem. He wants to give to his heirs tax free. So we arent really talking about a retirement plan anymore. Yes it is legal. That loophole should be closed.</p>
<p>That is a hell of a return your client had…</p>
<p>Hmmm, this who discussion about potentially requiring RMDs on Roth IRAs and taxing them again makes me increasingly hesitant to convert the funds we have in traditional IRAs and other retirement accounts into Roth. I doubt I would get 500% increase on any investment and really dislike paying taxes today if I can push it up the road instead.</p>
<p>Thanks for all the perspectives. Our CPA was discouraging us when we asked about converting anyway, since we are already in retirement in a higher tax bracket than we were pre-retirement, much to our surprise.</p>
<p>You have a roth because you think your tax rates are going to be higher when you retire than in the present. </p>
<p>You have a regular ira because you think your tax rates will be lower in the future than they are in the present.</p>
<p>There should be mandatory withdrawals in both plans. </p>
<p>The backdoor should be closed.</p>
<p>@dstark, there’s a bit of a logical discontinuity in what you say
“You have a roth because you think your tax rates are going to be higher when you retire than in the present.”
and "The backdoor should be closed. " Backdoor Roth is usually used by people whose income is too high to do a “normal Roth.” Thus, their tax rates are probably on the high side. If they think their rates will be higher still when they retire, that’s a bet that they should be entitled to place.</p>
<p>Anyway, this discussion reminds me of how much time is spent on the details of taxation. And that’s time spent by intelligent, hard-working people. It would be so much nicer to have, if not a flat tax, at least a tax that removes deductions, exemptions, limits, etc. Why is your donation to a church/charity deductible but my tuition payment not? Why does my neighbor’s income get taxed as “carried interest” at a capital gains rate while my wife pays at earned income rates? CPAs would be displaced for a while, but there are many things they could learn to do with their accounting skills.</p>
<p>Ixnaybob, parent was honest in what the backdoor is used for…</p>
<p>It is a very simple fix. Mandatory withdrawals. </p>
<p>Then maybe my post will make a little more sense. ;)</p>
<p>Huh? I didn’t say that the Roth conversion was done as a fiendish way to pass money on to heirs tax free. I said my client will spend all the money he needs to during his lifetime and what is left will pass on to his heirs. I can assure you he wasn’t thinking of tax-free inheritance when he did the conversion. As a matter of fact, I am certain he is totally unaware of the fact that his beneficiaries will inherit this Roth and not have to pay taxes.</p>
<p>I never said fiendish. It is legal. </p>
<p>IxnayBob for president!</p>
<p>I propose the tax code to fit on one small page.</p>
<p>Never going to happen. Too complicated to get on one page. </p>
<p>I do like that IxnayBob mentioned carried interest. What a scam!</p>
<p>People make too much money taking advantage of the tax code to change it much. Look at what Jim Simons has been doing. One of the very best traders ever.</p>
<p>Got to make it fit on a flash card. No deductions, exemptions, no way to buy off constituents, businesses or donors.</p>
<p>Until then, I need to get me some of that carried interest! When i find out what it is…</p>
<p>You do… :)</p>
<p>
dstark is right to call it a scam. I live in a town with many people in the financial services industry – full disclosure, my wife works for a large international bank and I did until I retired. Many of them I wouldn’t trust to run the Little League concession stand, but some are okay.</p>
<p>The biggest scam is at hedge funds. I know many people who work at them, including one dear friend who is ethical and a very decent person; I do not begrudge him doing what is legal. His compensation (i.e., the money he brings from work to his home) is deemed to be “carried interest” rather than earned income, so he pays capital gains tax rate on that instead of what you, I, and most everyone else pays (or, roughly half of what we pay).</p>
<p>
Yes, because otherwise people just wouldn’t be willing to work at hedge funds :-)</p>
<p>
I’m holding out for dictator, because I don’t want any of that checks and balances thing messing up my plan. And, when I’m dictator, things are going to be really different around here :-)</p>
<p>Okay, I take it back, then. No dictators.</p>
<p>Hedge funds and carried interest does sound like a massive scam. Wonder why our congress isn’t trying to stop that. $$$ donors, no doubt.</p>
<p>IxnayBob, :). </p>
<p>I understand that people are going to try and pay less in taxes. Doing something legally is rarely a character flaw. Taking advantage of roths is not a character flaw. </p>
<p>When these hedge fund guys say carried interest is good for the economy and people wouldnt work at hedge funds without it… I try not to judge people… But that is a character flaw. :)</p>
<p>I worked with a high frequency trading company and 60 percent of the profits of our future trades were characterized as long term. These trades took milliseconds to complete and usually a day at the most to close. It is legal. We took the tax savings. </p>
<p>But the trades are not long term.</p>
<p>
Form 1040FC (flash card):</p>
<p>Line 1: How much did you make last year? __________
Line 2: Send it in.</p>
<p>I don’t think anyone is talking about retroactively unwinding and taxing Roths from the first dollar, but rather making some changes so that is doesn’t become a means of bypassing taxation on income for generations, and trying to prevent it from being overly beneficial to people who are wealthy enough not to need subsidization.</p>
<p>$3 million in a Roth, spitting out $120K a year tax free, plus SS that is likely the max or close to it, puts you in the top couple of percent in the country.</p>
<p>Hilarious, nottichenogh! Though that wasn’t what I meant, there are some politicians that would be all for your form 1040FC.</p>
<p>So people on this thread are upset with the carried interest loophole for private equity and hedge fund operators. You may want to talk with Sen Schumer from NY, who has done everything possible to keep this favorable treatment of fees in the tax code.</p>
<p>“So people on this thread are upset with the carried interest loophole for private equity and hedge fund operators. You may want to talk with Sen Schumer from NY, who has done everything possible to keep this favorable treatment of fees in the tax code”</p>
<p>Well of course, bought and paid for. That’s the norm, I wouldn’t expect anything less. Or more, actually.</p>
<p>Sorry about the mangling of your name, notrichenough. On my iPhone, “nottichenogh” looks exactly the same. Gotta give in and use my reading glasses.</p>