WILL CONGRESS LET ROTH IRA WILT ON VINE? GATHER YE ROSEBUDS WHILE YE MAY, WARN TAX EXPERTS

Throw the Roth individual retirement account in there along with the Spice Girls, Beanie Babies and Titanic mania as relics of the late 1990s.

That’s the gut feeling of many tax experts who say the new IRA may go away before long, partly because it will cost the federal government billions of dollars in lost revenues in coming years. And though they stop short of saying that Congress will renege on its promise and tax the interest earned on Roth accounts, some say it’s conceivable that restrictions could be placed on the investment vehicle, which allows withdrawals for retirement, first-time home purchases and educational costs.

With the rush to roll over traditional IRAs, the government will raise a projected $86 million from conversion taxes in 2000, according to figures compiled by Congress’ Joint Committee on Taxation. But by 2007, annual federal revenue lost from the IRA changes — introduction of the Roth IRA and the expansion of traditional IRAs to higher-income taxpayers and non-working spouses — will reach $5 billion, according to joint committee figures.

And the real loss in revenue won’t come until 20 years down the road, says Greg Jenner, national director of federal tax policy for Coopers & Lybrand LLP. The joint committee hasn’t predicted what the loss will be, says Mr. Jenner, who was majority tax counsel for the Senate Finance Committee during the passage of the Tax Reform Act of 1986, the last time IRAs were figured prominently in legislation.

“I’d be a little surprised if it were available 20 years from now,” says Tom Ochsenschlager, partner in the national tax office of Chicago-based Grant Thornton.

Still, most experts insist that the Roth IRA is a sound investment for taxpayers and doubt that Congress would retract its promise and directly tax future Roth IRA distributions.

“I’d be amazed if they tried to pull that,” said Joseph Lane, an enrolled agent from Menlo Park, Calif., and spokesman for the Gaithersburg, Md.-based National Association of Enroll
ed Agents, individuals qualified to practice before the IRS though they are not CPAs or attorneys. “The backlash would be unbelievable.”

only slight possibility

But Bernie Kent, Midwest regional partner-in-charge of Coopers & Lybrand’s personal financial services division, says Congress’ taxing interest earned in a Roth IRA is a possibility, albeit a slight one. “Congress is usually fair with this sort of thing,” Mr. Kent says.

Other restrictions are possible. Congress could consider all or part of Roth distributions when figuring tax owed under the alternative minimum tax, Mr. Kent adds.

If Congress makes changes to the Roth IRA, the most likely scenario, experts say, would be to pull the plug on future accounts or enact tighter income requirements.

It’s been done before. The 1986 tax act set income standards for deductible IRAs that barred many middle-income Americans from participating. In 1986 investors poured $38.3 billion into IRAs, according to industry figures; that amount plummeted to $14.9 billion the following year. Since then, the U.S. savings rate has continued to drop.

to cut consumption

Roth IRAs were introduced by Congress as a national savings incentive and its members are not likely to shift gears, says Gillian Spooner, national director of legislative services for KPMG Peat Marwick in Washington. Congress would probably consider restricting Roth IRAs only if it found that taxpayers were abusing the system.

At least in the short term, Ms. Spooner says, Congress is considerably more likely to expand IRAs than to restrict them.

Brian D. Hartstein, managing partner with Phoenix-based Economic Concepts Inc., a tax and pension planning firm, concurs. He goes so far as to predict that Congress will allow taxpayers to roll over their 401(k) plans directly into Roth IRAs. Currently, the plan assets must be rolled into a conventional IRA first.

“They could put restrictions on Roth IRAs, but there would be too many interest groups and people crying,” Mr.
Hartstein says.

But after thinking for a bit, he recalls how Congress tacked pension provisions on a trade bill at the last minute.

“If they did that,” Mr. Hartstein says, “they could try it with (the Roth IRA).”