JP

Brace yourself for political drama, because we are nearing the final stretch of the presidential election. As all elections go, promises will be made and broken, character attacks will consume every free minute of TV advertising, and each side will accuse each other of threatening the financial future of everyday Americans.

The problem is it may not matter which side is elected. Many of the major political policies being proposed by either party have severe consequences for future retirements. While there is no way to fully avoid potential losses to your retirement via changes in legislation, there are some actions you can take to mitigate risks.

Tax Increases

Over the last 25 years, taxes on the middle class have mostly fallen. Some would argue that we are overdue for higher income taxes.

The last thing any retiree wants to see is Uncle Sam take a bite out of his retirement thanks to tax increases. Luckily, a Roth IRA account is designed to shield you from future income tax increases. Contributions to Roth accounts are made after tax. When you withdraw your money in retirement the proceeds are tax-free. It ensures that the highest tax rate that youll pay is your rate at the time you make contributions.

Income Tax Decrease and Adoption of a National Sales Tax

I wish I could say open a Roth IRA and your retirement is safe from tax policy. Unfortunately, there is a particular scenario that could put Roth savers at a serious disadvantage. What if income taxes decrease and the nation adopts a new tax, like a VAT or sales tax, to replace lost revenue?

If taxes are to decrease in the future, then Roth savers made the wrong bet since theyd be saving when taxes are high and receiving a tax advantage when taxes are low. A new VAT or national sales tax would make the problem worse since Roth tax advantages are limited to income taxes. Roth savers would be paying more tax money to contribute funds and paying more tax money to withdraw funds. They lose at both ends of retirement saving.

This isnt a made-up scenario. In fact, politicians on both sides of the aisle have supported this exact policy. Former Republican frontrunner Herman Cain ran on a plan for a 10 percent income tax and 10 percent national sales tax. Romneys vice presidential pick, Paul Ryan, has also supported similar policies in the past. Obamas debt commission supported the same strategy.

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Political Risks to Your Retirement