Monday, April 11, 2011

How Safe Is Your Roth IRA?

Self-directed IRAs are a tremendous vehicle through which to invest in commercial/investment real estate. Roth IRAs differ from traditional IRAs in that your contribution to the account has already been taxed. But however much it grows over time, what you take out you can enjoy tax free. At least for now. Because . . . a writer for the Los Angeles Times questions why Roth IRAs are not being examined as a source of revenue for a cash-starved government beast (okay, those are my words). Actually, our government treaury is not cash starved; its just that politicians from both sides of the aisle routinely spend more than the government takes in. And it can't continue. I am in favor of cutting spending, AND cutting taxes, for the latter stimulates money flow into the treasury. Kennedy knew it. Reagan knew it. But I digress . . . Be aware that with the current administration in Washington, EVERYTHING is being reviewed to see if more money can be squeezed from it to fund the federal government. Or in the case of the Roth IRA, whether the rules might be changed some day down the road. Mr. Scorcese, the Times writer, posits the following: "Roths drive up the federal deficit and cause other pain. They're great for holders but grim for America. Its time to retire them." He calls Roths "fiscal Frankensteins," because Wow. I'm not sure what economics class this individual has attended, if any. I respectfully disagree with his position . No, strike that. I overwhelmingly disagree, particularly since Roth IRAs do NOTHING to drive up the deficit. Spendthrift lawmakers drive up the deficit. Again, money coming into a Roth has already been taxed. I will give this to members of Congress in 1997 -- the government did one good thing when it created the Roth IRA. It created a system that actually -- for the first time in decades -- prompted Americans to save. Because they don't. And when they run through savings they buy on credit. Which can, for some, cause increased reliance on entitlements at retirement time. Megan McArdle, writing at The Atlantic magazine, and I are of the same mind. This blatant suggestion to "take" something from those who have worked and scrimped and saved and carefully selected the appropriate investment vehicle for their needs somehow "offends" those who would rather spend what they have now and worry later about how they will live. For Congress, it is far "easier" to penalize (increase taxes) on those who saved for their future, rather than penalize (cut benefits) to those who did not plan for their future. Three guesses which one they will attempt first. Keep an eye on this issue. I am convinced it may become a big discussion point in the time before the next presidential election, though the trend in the U.S. House of Representatives right now is about cutting spending. Even "working people" (I am one of those, for I work 60+ hour weeks) have IRAs and 401(k)s, and I believe it could turn into an ugly issue if the matter is pressed very hard. Nevertheless, the Roth IRA is STILL an outstanding vehicle through which to purchase investment grade real estate. The bottom line: Don't stop saving -- or investing.

No comments: