Uncle Sam is pushing Roth retirement accounts for now, and I see no sign of change in the near future.
I came across this interesting article on Kiplinger.com published on June 11, 2023. The author DAVID FAULKNER did an excellent job in highlighting the recent moves by lawmakers encouraging people to contribute more to #RothAccounts.
Being a practitioner, Faulkner does not blow the loudest trumpet for recent changes installed by Washington, but uses a cautious tone in his discussion on “Rothifying” retirement plans. If anything, he alerts us, “there are benefits and drawbacks to each type of account.”
That said, it is easy to see that the recent upsurge arises for a reason or reasons, especially on the government side. For one thing, #SIMPLE and #SEPIRAs can now accept #RothContributions, while “Prior to the passing of SECURE 2.0, SIMPLE IRAs and SEP IRAs could accept only pre-tax funds.”
This is not a small feat if we keep in mind how many sole proprietors there are in the country: about 27.8 million non-farm sole proprietors in 2022 (https://lnkd.in/gcZGq5gf.)
Another important change: “Workplace plans can allow employer-matching contributions to be made on an after-tax (Roth) basis.” Recall in my own post “Roth or not Roth, this is the (retirement) question” I specifically said employer’s contribution is using pretax money, which means the employee contribution (using after-tax money) must be separated from employer contribution (using pretax money). Allowing both contributions to be on the same page is a convenient plus.
“Effective in 2024, 529 college savings plan beneficiaries will be permitted to roll over up to $35,000 penalty-free from their plan to a Roth IRA over the course of their lifetime.” This makes sense given #529Plan works the same as Roth: Contribution with after-tax money and distribution is tax-free.
Uncle Sam seems to want to collect more tax revenue now rather than later, and no other law change is more revealing than this one: “Starting in 2024, all catch-up contributions for workers with wages over $145,000 during the previous year must be deposited into a Roth account. (This year, as in the past, pre-tax or Roth contributions are allowed.)” By requiring #HighEarners to make after-tax contributions, Uncle Sam can gather more tax in 2024 and beyond.
This is the reason I believe Roth retirement accounts are safe to stay now and for the near future, as Congress wants to gather more tax revenue today than later.
The only weakness of this article is to talk about “retirement savers” in general without separating people with different income levels and income structure (in terms of active, passive, and portfolio), like I did in my post. That said, this article updates us with the latest legal changes, something my post did not do.
