Consumption Tax Effect on Roth Conversion
Have been running the ESPlanner numbers on an IRA conversion to a Roth to take advantage of the lifting of the income limits in 2010. One of my key assumptions has been that income tax rates will have to increase substantially in the future, which generally makes the conversion option look good. But what if instead a federal consumption tax is imposed, such as the Fair Tax that Dr Kotlikoff has researched and supported, or some other version of a Value Added Tax? Is there a way to model a new consumption tax in ESPlanner, in particular as to how it affects a Roth conversion decision (not to mention determining such a tax's impact on our overall personal consumption situation). I just read yesterday that a prominent economist was "concerned" about the increasing prospects for a new Value Added Tax and its affect on prices and growth. And I saw that the Tax Governance Institute reports that 75% of senior business execs expect a US VAT within 10 years, with most of them expecting a new VAT tax within 5 years. So there seems to be something in the wind on this. We are a retired couple and 80% of our wealth is in tax deferred accounts, so this Roth decision is paramount for us this year.