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Breaking a Promise

In 1997, the U.S. Congress passed legislation that gave birth to a whole new kind of retirement account. They called it a Roth account. It was – and is – a thing of beauty.

The idea was that people could pay taxes upfront on their retirement contributions, and then Congress would make a pact, a promise, not to tax those dollars – nor any of the gains – in the future. No taxes. Ever.

There is persistent concern that Congress, however, will someday break its promise. The worry is that Congress will, in a state of desperation, ultimately decide to tax those Roth assets at some point in the future to generate additional tax revenue.

I don’t share that concern for three reasons. The first two are political and the third is mathematical.

The first reason I don’t think Congress will ever explicitly tax-qualified Roth distributions is due to political push-back. Legislators would be deliberately breaking a promise made to taxpayers. That promise is that all future gains in Roth accounts would be tax-free. Legally, I suppose, Congress could make that change, but politically it would be self-sabotage. Trust in the retirement system would be shattered.

The second reason is a bit more technical. If Congress reneges on its Roth promise, no one would contribute to Roth accounts ever again. Why save money in a Roth account that is going to be taxed twice when you could save it in a pre-tax account and only be taxed once?

Everyone would use pre-tax accounts instead of Roth.

This would have real-world financial implications for Congress since all proposed legislation is scored. Scoring is a way of estimating how the proposed legislation would impact government collections and spending.

Double-taxing Roth accounts would presumably be a scoring problem for Congress. Think about it. Roth contributions are taxed in the current year. That’s good for money-hungry Congress. Pre-tax contributions, however, bring no immediate money to the government. Instead, pre-tax contributions aren’t taxed for perhaps decades. But congressional scoring only looks at the financial implications over the next 10 years.

So breaking its promise on Roth taxation would have the effect of decreasing the amount of money Congress projects to have at its disposal. Thus, the legislation likely wouldn’t score well.

The third reason, quite frankly, is truly the most persuasive. The dollars just don’t add up.

U.S. citizens hold roughly $39.4 trillion in retirement assets. However, only about 6% of those assets are Roth IRA dollars. The rest is pre-tax money. Roth accounts currently hold roughly $2.4 trillion in assets.

Allow me to make an absurd proposal. Let’s say Congress passes legislation to tax every single Roth IRA dollar immediately. Today. All at once.

That $2.4 trillion, which sounds like a lot of money, would produce, maybe, $605 billion of taxes. Again, that sounds like a big number. But the 2022 budget for the United States is $6 trillion. Those Roth taxes would cover about 37 days of spending. That’s it.

So double-taxing Roth assets would yield very little revenue for the government. And that’s if Congress forced taxation on every last Roth dollar right now. In reality, even if double-taxed, those new Roth taxes would come in dribs and drabs, as Roth holders distribute money from their Roth accounts.

Why would Congress even bother? There are far easier ways for Congress to generate far more tax dollars, far more consistently. Increasing income taxes or payroll taxes come to mind.

I’m not one to make many predictions. But this is one prediction I am comfortable proposing: Congress won’t tax your qualified Roth distributions.

Contribute to those Roth accounts with confidence.

Justin Lueger is President of Invisor Financial LLC, a registered investor adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at

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