We've had a Presidential order creating a "payroll tax holiday", and the best information I can find about this can be read at Forbes and summarized as follows:
- No/Reduced federal tax from July 1 until December 31, 2020
- Taxes are deferred, not cancelled or suspended
- Taxes will eventually be owed later
It's this last line-item that gives me pause, and so when I get a larger than usual/expected paycheck, I plan to throw it in an S&P 500 fund and let it grow quietly until the IRS comes calling asking for their money, then I can keep the gains on it and they can have the principal back. So far, so good.
Here's where things get interesting. I know I can contribute up to 6K to a ROTH IRA per year. I am Nowhere Near the limit, sitting around ~$400 in my ROTH IRA right now for the year. I know I can pull out my principal contribution to my ROTH IRA at any time without penalty. Therefore, I have two options. I can either:
- Store the tax funds in a conventional taxable brokerage fund
- Store the tax funds in a tax advantaged ROTH IRA brokerage fund
Either way, I'll have the IRS' money set aside for when they want it, but what makes more sense? How is this 'untaxed money set aside to pay taxes' best handled in this case? I can't even begin to comprehend how the law will play out here, or how the tax code treats this money.
The only things I can see for sure is that if I throw it in the IRA, the growth can continue to grow tax advantaged, if I keep it OUT of the IRA, I can throw it into my 'buy a house' fund afterward, and if the S&P 500 takes another brief dip around the time the taxman comes a'callin', I will have to make up the difference out of pocket.
The main article I am referencing is this Forbes article. which confirms an executive order is announced. The section under the heading "Payroll Tax Holiday" explains the effective power of President to effect a payroll tax holiday.. Article states: "Cutting taxes would require Congressional action, but Trump could use his emergency powers to delay collecting taxes—meaning they would theoretically have to be paid back later unless Congress agreed to waive repayment."