Most personal finance bloggers (this one included) love the Roth IRA. Contribute to a plan with after-tax money, then watch your funds grow unencumbered by taxes. And, when you are ready to withdraw, you don’t have to pay taxes either. But what’s good for the individual might not be good for the collective whole. LA Times columnist Gerald Scorse has damning words for Roth IRA, calling it a “fiscal Frankenstein.” I never thought about it this way, but might my favorite retirement vehicle be bad for America’s fiscal health?
There’s no tax break on contributions. But from that point on, taxes simply vanish. As long as the account is at least 5 years old, there is no tax on any withdrawals made after age 59 1/2. There’s no requirement that you make a minimum withdrawal — after age 70 1/2, or ever.
All of which makes Roths a perfect “fiscal Frankenstein.” In return for little more than ordinary upfront taxes, Congress waived untold billions in future Treasury receipts. Then, too, Roths could be a drag on the U.S. economy. Since no withdrawals are required, assets can lie idle indefinitely.
For Roth holders, the accounts become a permanent, federally sanctioned tax shelter. For America, they’re a bit like toxic instruments on the nation’s books.
Scorse acknowledges that the Roth is a good deal for individuals, but that’s not enough. He concludes:
Whatever the answer for individuals, there’s little doubt that Roths are wrong for America. They’re Frankensteins, fated to wreak havoc. It’s time to retire Roth IRAs.