Could ROTH IRAs have an Impact on
Future Taxable Income ?
By Edward Brown
Back in the early 1980s , when I was preparing tax returns , I made a prediction that everyone I shared with thought I was out of my mind : I predicted that the government was going to tax Social Security in the future . The objection from my naysayers was that the income was already taxed , so it would not be fair to tax it again .
My reasoning was that the government is always looking for ways to raise revenue , and it tries to do it in very sly ways . Unfortunately , I was right . First , Congress decided to have as much as half of a recipient ’ s Social Security be subjected to taxation ; then , it was decided that up to 85 % of Social Security could be subjected to tax , depending on the taxpayer ’ s adjusted gross income . This is not the first time Congress has done this “ end run ” on taxing certain income . In the “ old days ”, prior to the 1980s , the Alternative Minimum Tax was designed to only tax those wealthy taxpayers who could afford tax shelters and other tax avoidance schemes . However , years later , many people were subjected to this , somewhat hidden , tax as they had no idea they were being thrust into it . Certain expenses such as State Income tax deductions were added back into income and taxpayers found themselves paying more when they filed their income tax return than they expected . Worse , it was difficult to avoid this tax that was supposed to be imposed on “ the wealthy ” but was now subjecting middle class taxpayers .
Next , Congress decided that Municipal Bonds could potentially cause a taxpayer to pay higher taxes [ on their Social Security ] than they normally would by owning Municipal Bonds , depending on adjusted gross income . So , although the owner of Municipal Bonds does not pay tax on the interest earned on those bonds , the taxpayer may end up paying more taxes on other income because of the Municipal Bond income .
My predictions for the future are : First ALL Social Security income received will be taxed . Next , since the system cannot accommodate all the Baby Boomers who are either currently receiving Social Security or are about to , the current threshold of income that is subjected to FICA from current workers will increase . Next , the retirement age at which someone
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