A new House bill would crack down on IRA tactics used by the ultra-wealthy to build up tax-free fortunes, ProPublica reports.
The bill, which is sponsored by House Ways and Means Chairman Richard Neal, would cap the total amount a person could hold in a Roth IRA at $20 million and require those who have more to withdraw it.
Individuals would also have to withdraw half of any amount over $10 million held across all of their retirement accounts. The provision would only apply to people earning over $400,000 and couples earning over $450,000.
“Incentives in our tax code that help Americans save for retirement were never intended to enable a tax shelter for the ultra-wealthy,” Neal said. “We must shut down these practices.”
Peter Thiel prompted change:
The bill is not likely to affect the vast majority of Americans, whose average Roth IRA is worth less than $40,000.
But Neal’s bill was prompted by a ProPublica report detailing how PayPal founder Peter Thiel used his Roth IRA to build up a $5 billion fortune despite $6,000 annual limits.
Thiel would not owe any tax if he withdraws the money after turning 60.
Under Neal’s bill, Thiel would likely have to pull all but $20 million from the account and pay taxes likely in the area of hundreds of millions of dollars.
But because the bill is limited to those earning over $400,000, Thiel could also reduce his income to avoid the liability while using his assets to continue growing his fortune.
Not just Thiel:
“The whole thing was written in response to Peter Thiel,” Ed Slott, an IRA expert, told CNBC. “Because he fits the profile: He’s in his 50s and has $5 billion.”
But the number of people with over $5 million in their IRAs has tripled to about 28,000 since 2011.
“It’s not just people like Peter Thiel,” Beth Shapiro Kaufman, an estate planner at the law firm Caplin & Drysdale, told the outlet. “I see professionals who have amounts that could be into the two digits of millions, because the period of their working life was a phenomenal period in the stock market.”