Wednesday, June 6, 2007

A Good Time to Plan Ahead

Current law dictates that sometime during the period between 2017 and 2027 the credit rating of the U.S. Government will drop from "AAA" to "junk" because the Baby Boomers will be placing such high pressure on Social Security and Medicare. The government simply cannot permit this, so it is inevitable that personal tax rates will rise dramatically to prevent any shortfall. Even if Congress cuts spending, major tax hikes are inevitable unless dramatic changes occur (like scrapping the IRS and initiating a national sales or flat tax).

It is therefore likely that tax rates on IRA's and other retirement vehicles will increase. However - and this is where it pays to plan ahead - Roth IRA's and Roth 401(k)s will probably remain untouched. Why? Because the taxes have already been paid on the funds that are contributed to a Roth., and future distributions are tax free.