I don’t understand why there is a contribution limit for a Roth IRA.

It’s post-tax revenue. What does the government care if I spend it on crack, buy a Rolex or give it charity?

So I asked ChatGPT and still makes no sense to me.

Here’s their answer:

The contribution limit on Roth IRAs exists for several reasons:

1. Tax Revenue Management: Roth IRAs offer tax-free withdrawals in retirement, which means the government doesn't collect taxes on the earnings. Limiting contributions helps manage the potential loss of tax revenue.

2. Preventing Abuse: Without limits, high-income individuals could funnel large sums into Roth IRAs, taking undue advantage of the tax benefits. Contribution limits prevent such abuse and ensure the system remains fair.

3. Encouraging Retirement Savings Across Income Levels: By setting contribution limits, the government encourages individuals across different income levels to save for retirement without disproportionately benefiting the wealthy.

4. Budgetary Considerations: Contribution limits help manage the long-term fiscal impact on the federal budget, as Roth IRA withdrawals are tax-free. Keeping limits in place helps ensure that the tax expenditure on these accounts is controlled.

5. Promoting a Diverse Savings Strategy: Limits encourage people to use other savings vehicles alongside Roth IRAs, promoting a more balanced and diverse retirement strategy.

These limits help maintain the balance between encouraging savings and managing the broader economic and fiscal impacts.