I’ve heard recent criticism of the Roth IRA because it’s a retirement plan that some say will raise the federal deficit in the future. Critics argue that the traditional IRA and 401(k) accounts essentially pay the country back because the withdrawals are treated as taxable income. Meanwhile, the Roth IRA allows money to grow tax free and also be withdrawn tax free. People just have to pay upfront taxes on the money they contribute to a Roth. Some lawmakers have proposed changing it so that people have to withdrawal money from their Roth at age 70 ½ just as they have to from the traditional IRA. Their motive is to limit the runaway tax-free growth of the Roth. In a time when the government takes as much money as it can from citizens, it’s ridiculous to sacrifice the Roth IRA. Instead of arguing it only helps the rich, critics should educate the working poor and middle class about how to invest in a Roth.
Benefiting the working classes
It’s certainly a better deal to invest in a Roth, but not just for the rich. The Roth IRA is a wonderful financial opportunity for everyday people. A person only needs earned income to invest in a Roth account. A married person can also have a spousal Roth IRA based on the working partner’s income. Most discount brokerage firms will allow people to save any small amount into their Roth IRA account. I sometimes contribute as little as $20 at a time, which gets held in a money market account until I’m ready to purchase stocks or other investments.
Finding a solution for the deficit
I agree that we need to take care of the national deficit, but not by hurting the Roth. According to an opinion piece by The Hill, the Roth IRA allegedly costs the Treasury billions of dollars. Perhaps the solution to the national debt begins with balancing a budget and cutting spending. Besides, I think the author of the opinion piece overestimates how much Roth IRA accounts will even grow. He’s assuming everyone who invests in the stock market over time will get some kind of stellar results. The reality is, Roth IRA money invested in stocks can just as easily go down in value. In a worst-case scenario for the Roth IRA holder, the government wouldn’t gain anything. Besides, people have already paid taxes on the money they put into a Roth unlike the money put into a traditional IRA, which is tax-deferred.
It’s pretty sad when lawmakers have to target the Roth IRA, which could be the salvation of the middle class in retirement. Suze Orman is constantly promoting the Roth IRA to middle class people, not just the rich. It’s the middle class that will have their Social Security benefits taxed to the hilt. If lawmakers want to lower the national debt, they can start by taking pay cuts. Make the Roth more accessible to everyone instead of using it as the scapegoat for the national debt.
More from this contributor:
Un-Baby Boom Means Less Social Security Later
Social Security Isn’t Worth Saving
Retiring on the Purple Plan