Q. In order to avoid some of the un-desirable tax consequences you have mentioned in recent columns, I converted my regular IRA to a Roth IRA as soon as I could. I love my Roth IRA because I will never have to pay additional taxes on it, I will never be forced to withdraw from it, and I will never need to calculate capital gains.

But I wonder if I am deluding myself. The federal government, it seems to me, broke faith with taxpayers when it started taxing Social Security benefits. It makes me wonder if I am being similarly setup--- encouraged to build a sizeable nest egg so that someday the government can point to it as a fat target and start taxing the heck out of it. All in the name of "saving the system."

I guess my question is, how reliable do you think the covenant is that the government will never tax Roth IRA's?

---A.C., by e-mail from Seattle


A. Your concern is likely to become more widespread if the Bush Administration plan to introduce what amounts to Roth IRA's on Steroids--- Lifetime Savings Accounts and Retirement Savings Accounts--- is written into law. Why?   Because it will vastly expand the pool of money not subject to taxation. Still, I doubt that these plans would be taxed directly. Instead, we're more likely to see a variety of subtle (weasel-like) changes that will shift tax revenue sources.

The main thrust will probably be a shift from income-based to consumption-based taxes, e.g. higher sales taxes or a value added tax. With either, your Roth IRA withdrawals would not be taxed--- but the cost of what you buy would be higher because it would contain more taxes.

Other changes that would reduce federal expenditure commitments would include things like increasing the employment tax, increasing the age of retirement for full Social Security benefits, and means testing for Social Security benefit eligibility.


Q. I recently picked up some suggested reading entitled, "Rich Dad's Prophecy" by Robert Kiyosaki. It paints a grim picture of what the author describes as a "perfect storm" coming for America. He states that retired baby boomers will be cashing out their 401(k) s in such mass quantities that the future stock market will have nowhere to go but down because there will not be enough buyers (twenty-somethings and thirty-somethings) to sustain market prices. He says that China will be the next financial success as America is left in the mud to collapse financially. He says that terrorism will only get worse, destroying the stock market over time.

His conclusion is that equities and bonds are a fatal mistake for anyone planning for retirement, young or old. He says that you will have nothing but losses in your future if you invest in the stock market, regardless of how near or far to retirement you are.

He says that the only way to survive and have any kind of real retirement is through real estate investing, citing examples like warehouses, rental properties, and "house-flipping".

If all that he says is true, then what is the point of all that I have been doing all these years saving as much as I can in my 401(k)? Has this all been a waste of time?   Should I just cash it out and put it into houses or rental properties? He makes a disturbingly and convincing argument that stocks will not survive over the next century enough to provide any significant income for anyone.

  ----C.J., by e-mail


A.   There are many reasons to be concerned about the future and future returns on conventional investments. I have written about many of them in the last year. There is, for instance, a developing thesis that we are heading for a long period of poor returns for equities relative to bonds.

There is also increasing concern that there will be a generational mismatch between buyers and sellers as baby boomers retire. There are also concerns that we'll see higher tax rates and cuts in Social Security and Medicare. And, finally, there is concern that the industrialization of China--- with its annual movement of 25 million workers from farms to cities--- will put the entire world into a seemingly endless period of price deflation.

All of those--- not to mention AIDS, Ebola, anti-biotic resistant tuberculosis, oil shortages, and a few other things--- are real and meaningful concerns. There were, however, real and meaningful concerns ahead of us in 1900, 1920, 1940, 1960, and 1980--- just to name a few years. This is the way things are.

Somehow, we manage to cope, build savings and capital, and get through the day.

How Mr. Kiyosaki makes the leap from these legitimate concerns to solving the problems through real estate is quite beyond me.