We all have that friend who is financially irresponsible. You know, they have a new cell phone every time one comes out. They lease a brand new car every 2 years. Their credit cards are maxed out. And they don’t really have a game plan on how to pay for the stuff they have. The best I can tell is that our government is kind of like that. If you look at the timeline, all major tax changes result in increased taxation. Let’s just look at what happened with Social Security:
- In 1935, the Social Security Act was passed, and the Social Security benefits systems was created. Benefits were not to be taxed.
- In 1937, FICA began payroll taxes of 2% in order to fund the payout of SS benefits.
- In 1950, payroll taxes were raised to 3% in order to fund the payout of SS benefits.
- In 1956, payroll taxes were raised to 4% in order to fund the payout of SS benefits.
- In 1972, payroll taxes were raised to 9.2% in order to fund the payout of SS benefits.
- In 1977, payroll taxes were raised to 9.9% in order to fund the payout of SS benefits.
- In 1983, payroll taxes were raised to 10.8% in order to fund the payout of SS benefits.
- Starting in 1984, up to 50% of an individual’s or couple’s Social Security benefits were subject to tax.
- In 1985, payroll taxes were raised to 11.4% in order to fund the payout of SS benefits.
- In 1993, payroll taxes were raised to 12.4% in order to fund the payout of SS benefits.
- Starting in 1993, up to 85% of an individual’s or couple’s Social Security benefits were subject to tax.
And now onto the title topic: Roth IRA & Roth 401(k) accounts… which are tax free investment accounts instead of tax deferred. Some people believe the benefits of investing a Roth retirement account over a Traditional retirement account are magnificent. Some people believe they are negligible. But both of these opinions rest entirely on the theory that these Roth accounts really won’t be taxed upon distribution.
If SS benefits were never supposed to be taxed, but eventually were… what do we have that will fully protect the tax free status of our Roth accounts?
And now, a somewhat relevant funny video:
[youtube=http://youtube.com/watch?v=GLNMIwcMq_U]
