Let me paint a darker picture. Social Security has always been a defined benefit (for the most part). You put X amount in, you get Y amount out. It’s more complicated than that, but there’s never been a requirement attached to that. Nobody audits your investments or sees if you “deserve” more or less.
Yet at the same time, we know that entitlements are rapidly approaching a critical stage. As a political football, the approaching “disaster” has been used by the various political parties to trumpet their own “solutions,” such as means testing (reducing the benefits to wealthier individuals) and privatization (allowing people to “opt out” of some or all of the Social Security program).
But what I wonder is whether, when all of that fails and the bills from all of our other social spending, war spending, foolish tax policies and declining dollar value comes home to roost, won’t someone see taxing all the “rich” people with Roth IRAs as a potential political solution? I think a perception still exists that Roth IRAs or 401(k)s are for “rich” people with “extra” savings. What politician wouldn’t think to tax Roth withdrawals “just a bit” to preserve Social Security? Wouldn’t a 5% tax on Roth IRAs be easier to sell than a 5% reduction in Social Security benefits?
I do not advocate giving up on Roth accounts at all. My wife and I both have one. But just keep in mind that an IRA or 401(k) which allows you the opportunity to avoid taxes today has some value, too. The Roth accounts will be tempting targets for politicians when the entitlement system finally starts collapsing under its own weight as the Baby Boomers retire.