Tax Guru-Ker$tetter Letter
Saturday, November 08, 2003
New tax-free savings accounts are the next Bush push
These proposals are basically extensions of Roth IRAs. I have the same reservations about these as I have always had with Roths. First, there will be no immediate deduction for the contributions to the savings plans. The payoff is that all income earned by these accounts will supposedly be tax free when drawn out. That is very risky because it depends on our rulers not changing the rules over the next few decades.
As I have to keep reminding people, our rulers have no qualms about breaking promises in regard to issues just like this one. The most blatant example of this happening has been with Social Security. The original plan was set up with no deductions for the money paid into the SS system with the trade-off being that the benefits would be completely tax free. As we have seen, this was changed so that 85% of benefits received are subject to income tax for those who are considered by our rulers to be too wealthy; which means anyone with an annual AGI (adjusted gross income) of more than $25,000 ($32,000 per couple).
There is no way anyone can convince me that our rulers won't pull the same switch in future years. The concept of "means testing" (aka screw the evil rich) is too ingrained into the tax system of this country to expect it not to arise in regard to future withdrawals from tax free savings accounts by "wealthy" people.