5 September 2009 Roth I.R.A.’s and “a misguided law enacted in 2006”
On Thursday, the NYTimes published an editorial titled “Once and Future Taxes” discussing the upcoming need for President Obama to raise taxes on more than just those Americans making over $250,000 per year. The details of why are beyond the scope of this post, but if you fancy reading an argument to sensible for American party politics to heed, you can find it here.
Instead, what interests this post is the following passage from that same NYTimes editorial:
Next year, a misguided law enacted in 2006 will take effect, giving high-income taxpayers the chance to shelter much of their money from future tax increases.
The law will let high-income taxpayers transfer traditional individual retirement accounts into so-called Roth I.R.A.’s. Unlike regular I.R.A.’s., no tax is due when money is withdrawn from a Roth. That often makes Roths a better deal, especially if you believe that tax rates will be higher in the years to come — and they are bound to be higher. Taxpayers who switch to Roths will have to pay tax upfront on the amounts they transfer, so the government will get a jolt of revenue. But later, the transfers will be a money loser for the government as high-income Americans and their heirs make tax-free withdrawals that would have been taxable at tomorrow’s higher rates.
I’m interested to know more about this “misguided law enacted in 2006”. Particularly:
- What is the law?
- What is the law’s history?
- Are any group(s) unduly benefitted by the law?
- How much is it projected to diminish tax revenues and for how long?