One of the hot financial services stories of the month is the idea that Congress might eliminate traditional 401(k) plans and replace them with Roth-only 401(k) plans.
Today, many workers get tax breaks for contributions up front and pay taxes on the distributions after they retire. Some pay their taxes now, make their contributions with after-tax money, and go to sleep dreaming cheerfully about the idea that they will be able to withdraw the cash free from income taxes after they retire.
(Related: GOP Proposes Radical Change to 401(k) System)
My question always was: How can a saver trust the federal government to keep a promise not to tax a stream of income? To me, that always seemed to be the fiscal equivalent of expecting Curious George, the monkey in the children’s books, to sit quietly in a chair in a chocolate factory and not play with the automated conveyor belt producing the chocolates.
Of course Curious George will play with the conveyor belt.
Of course the federal government will eventually find some way to get at the income flowing out of Roth individual retirement accounts and Roth 401(k) plan accounts.
Maybe members of Congress will try to look innocent and ask, “What, us go back on our word?”
The government has shown its lack of reliability by doing what it can to keep interest rates near zero for almost 10 years, a maneuver that helps debtors, including the U.S. government, but hurts responsible retirement savers.