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To: Milton Miteybad
The portion in bold is just flat wrong. These are tax-deferred accounts, where current contributions are made with pre-tax dollars and are taxed at withdrawal, at the rate for that taxpayer at the time of withdrawal. The money will most certainly be taxed later on, even if it isn't being taxed now.

There is one category of assets/funds in IRA's or 401(k)'s that meet this description: The ROI in Roth 401(k) or Roth IRA. I believe that's what the article is referring to.

An example: you contribute $5,000 to a Roth IRA this year (that's the maximum, if you are under 50). You will have paid income taxes on that contribution, because only earned income is eligible.

However, if you don't withdraw those funds for 20 years, and you get an average ROI of 7% per year (which isn't unreasonable), that original contribution will grow to nearly $20,000.

On withdrawal from the Roth IRA, you won't pay income taxes on any of it, as long as you don't withdraw it before the year you turn 59-1/2. That means that nearly $15,000 is never subject to income tax. Furthermore, there is no minimum required distribution, so you don't have to withdraw from it at all. Then, you can bequeath your Roth IRA to a spouse, child, grandchild, etc. If it is someone besides your spouse, they will have to start withdrawing from it within 5 years after your death, but the minimum required distribution rules apply and they can spread it over their entire remaining lifetime. And except for your original contributions, it will all be tax-free, aside from any estate tax that may have been assessed.

80 posted on 11/29/2012 12:44:33 PM PST by justlurking (tagline removed, as demanded by Admin Moderator)
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To: justlurking
No argument about the nature of Roth IRAs, where you contribute after-tax dollars but receive tax-free distributions at retirement. However, I don't see where the article specifically mentions Roth IRAs in particular. (Maybe they did, but I missed it.) I do see where the article mentions conventional IRAs, 401Ks, and by extension, SEP, SEP-IRA and Keogh plans, the contributions for which are all made with pre-tax dollars, and I believe it's the deductions for those types of accounts the article is targeting when it decries this supposed "tax expenditure" of $100 B per year.

While it is possible that the article intended to focus on the tax-free distributions from Roth IRAs as the villain in this alleged $100 billion per year in "tax expenditures," one would think that they would have said as much.
92 posted on 11/29/2012 2:41:49 PM PST by Milton Miteybad (I am Jim Thompson. {Really.})
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