3 ms·

You missed the part where the Roth backdoor is very deliberately subverting the intent of the law. Congress deliberately put an income cap on who can contribut

You missed the part where the Roth backdoor is very deliberately subverting the intent of the law. Congress deliberately put an income cap on who can contribute to Roth IRAs. It's obviously there in the law and the intent is clear. However, thanks to the conversion backdoor, high income earners can still contribute to Roth IRAs—against the intent of the law. To me, this is exactly as moral as what corporations do to avoid taxes.

sokoloff 11y ago
I'm not convinced it's either bad for the government nor against the intent of the drafters. (It would be easy to claim "Oh, we never intended this to be a handout to rich fat cats; see, it's right here in the law. Ooops, we didn't think of this super-obvious workaround, but hey, we tried...") When you do a Roth conversion, that income has already been taxed once (either at the moment of conversion for a previously pre-tax account, or by virtue of funding it with already-taxed money). On all the money that was previously pre-tax (traditional IRA for example), the government gets its tax income now at the moment of Roth conversion instead of much later. If the government or the individual would make the same investments, get the same return, and the tax rates would be the same, the government would get the same money either way. The problem is the government is running deficits and so isn't investing the money like a wealthy individual would and so isn't getting the same long-run tax income from it. This part is a spending problem, not a tax policy problem, IMO. The only reason I'm not doing Roth conversions is that I don't trust our government to stay solvent enough long enough to keep the deal that Roth withdrawals will be tax-free later. Instead, I keep my post-tax money in traditional brokerage accounts or other non-tax-advantaged vehicles where I'm more sure that the gains will only be taxed one more time, but where I keep the flexibility to invest and use the money.

sokoloff 11y ago

I'm not convinced it's either bad for the government nor against the intent of the drafters. (It would be easy to claim "Oh, we never intended this to be a handout to rich fat cats; see, it's right here in the law. Ooops, we didn't think of this super-obvious workaround, but hey, we tried...") When you do a Roth conversion, that income has already been taxed once (either at the moment of conversion for a previously pre-tax account, or by virtue of funding it with already-taxed money). On all the money that was previously pre-tax (traditional IRA for example), the government gets its tax income now at the moment of Roth conversion instead of much later. If the government or the individual would make the same investments, get the same return, and the tax rates would be the same, the government would get the same money either way. The problem is the government is running deficits and so isn't investing the money like a wealthy individual would and so isn't getting the same long-run tax income from it. This part is a spending problem, not a tax policy problem, IMO. The only reason I'm not doing Roth conversions is that I don't trust our government to stay solvent enough long enough to keep the deal that Roth withdrawals will be tax-free later. Instead, I keep my post-tax money in traditional brokerage accounts or other non-tax-advantaged vehicles where I'm more sure that the gains will only be taxed one more time, but where I keep the flexibility to invest and use the money.