Double Taxation possible

[c908929c]

Has anyone considered the chance of double taxation for retirees if income tax is replaced with a sales tax, VAT tax, or even tariffs. Most retirees have saved after tax dollars to a large degree, some cash, some Roths, and maybe some other methods. I have not read any articles on the ramifications to retirees. I am worried that the post income tax dollars we saved will be taxed again. This is something that needs to be watched and addressed. A change to national sales tax or similar tax without adjustments for after tax dollars means we will pay tax again on our savings. the only savings that won't be hit would be pretax savings. With the new administration this change could happen fast so please start writing your congress person now. The last flat tax bill presented suggest a percentage to cover income tax and FICA. Will the next one be similar? If so, haven't we already paid a lifetime of FICA? And haven't most retirees already paid income tax on earned money? I hope AARP can publish an article on this subject since the folks I have mentioned this to have not realized a possibility of double taxation even on a Roth account.      

[GailL1]

WHAT???

Any time one wants to SPEND money that they have saved that has already been taxed, the amount spent on a commodity that bears a sales tax, it is taxed again but in a different way.

Actaully it is this way for even ones paycheck - you earn it , get paid, pay income tax on it and then go spend it and it is (sales) taxed.

If you want to spend money that is in a ROTH account, where one has already paid income taxes on it, you take out the amount you want and then go spend it and if that item is applicable to sales tax like most things are - you pay the sales tax on the money you have taken from the ROTH.

You are losing me with your logic here.

[c908929c]

The last bill that was proposed to abolish income tax and the IRS included a National Sales tax. The Buddy Carter sponsored bill did not pass but was proposed. Had it passed you and I would have had to pay a national 23% sales tax on top of any state or local sales tax we already pay. So, if you own anything or have any after tax savings, A Roth, Money under the mattress. Any property that you bought with after tax dollars and convert it to cash by selling it for cash would be taxed another 23%, Even nursing home care could be taxed at 23%. You were taxed income tax as you accumulated your assets, and a national sales tax would tax you 23% as you decumulated your assets.   

[BalbonisMoleskine]

Yes, if you purchase something with money take from your Roth, you would pay sales taxes.

I'm talking about a new, additional tax: When you pull money from a Roth, you would pay an income tax on that. 

There's simply too much money in Roth accounts for Congress not to implement that new, additional tax. 

[BalbonisMoleskine]

It's inevitable that Roth distributions will be taxed. There's simply too much money there for Congress to ignore, especially with all the people doing Roth conversions over the past few years.

Budget accordingly for these and other new taxes. 

[GailL1]

@BalbonisMoleskine 

Proceeds from a distribution from a Roth  is always taxed if you spend it on something that bears a sales tax - different type of tax.

[BalbonisMoleskine]

Yes, if you purchase something with money from your Roth, you would pay sales taxes.

I'm talking about a new, additional tax: When you pull money from a Roth, you would pay an income tax on that. 

There's simply too much money in Roth accounts for Congress not to implement that new, additional tax.

[GailL1]

I don’t think Congress would touch retirement account, I mean both a Republican and a Democratic Administration have loosened the laws on when a beneficiary HAS to begin taking their RMDx out of their tax deferred retirement account.

In 2019, the age was raised from 70+1/2 to 72 by the Secure Act and in 2023, the age was again raised from 72 to 73 by the Secure Act 2.0.

If they had been wanting more tax dollars, they would have left it at 70+1/2 so that people would have to start their distributions earlier.

A while back there was some discussion of people having to add all their reiirement accounts together and then base the formula of minimum distribution on the total amount of all kinds of retirement accounts.  But that got nipped in the bud since they would have had to adjust the rate of tax on the added ROTH amount.

I don’t think our government is interested at the present time in saddling people with more taxes - They won’t even raise the Social Security payroll tax to save the system.  

Congress has enough to worry about now to raise taxes - a certain death to their political career.  In fact, we should all hope that the 2017 tax cuts stay in place.  They definitely helped me and I am not rich.  

As for another NEW tax - I doubt it but I would have to look at the plan before I say it won’t work, like a national sales and/or  tax.  Other countries use a tax like this or a VAT to fund some of their programs like healthcare.

[BalbonisMoleskine]

If our government wasn't interested at the present time in saddling people with more taxes, it would adjust the thresholds on income taxes on SS benefits rather than letting them remain at 1980s levels. This means more retirees pay more income taxes on their SS benefits each year. Of course, that means more money going back into the SS system to pay benefits. 

[GailL1]

I am not so sure that it is just Congress that is turning away from their responsibilities here.  I think people are stuck in the mindset that THEY don’t need to pay more but other do -

[c908929c]

If income tax is axed and there are not any adjustments anything we own that is our free and clear will be taxed again by a national sales tax or similar. Say you bought 1 acre of land for 50000 dollars with after tax dollars then you sell that acre for 65000 dollars 10 years later and spend that on a new truck 50000 dollars will be taxed again for the purpose of financing the government just like income tax is now.

[GailL1]

@c908929c 

If you sell something that you own free and clear - you will probably spend the money and if that purchase bears a tax, it is taxed but in a different way.  

[c908929c]

I agree. But I wonder why the subject is never discussed since most financial gurus push folks toward Roth 401Ks and never mention the fact that a Roth is only good for the tax system we have today. The dangers of your contributions being taxed again is seldom if ever mentioned. Today there is a better chance than ever we could see the tax system changed.  

[BalbonisMoleskine]

If people don't realize that their Roth IRA or Roth 401(k) possibly or likely will be taxed in the future -- or used to means test their SS benefits -- then it's easier for financial advisers to sell them on putting money into those. And they aren't breaking any rules, legal or ethical, by doing so because they have no control over the federal tax code.