So-called Mega-Roth IRAs are targeted for elimination in President Joe Biden’s $6.8 trillion FY 2024 proposed budget released today, as one of many ways the Biden Administration is looking to make the wealthy along with corporations “pay their fair share” while promising no tax increases for those making less than $400,000 per year.
The White House’s proposed budget has been widely viewed in media reports as having absolutely no chance of making it through the Republican-controlled House, but it will likely frame upcoming political budget battles on Capitol Hill as the government looks to avoid what would be a catastrophic default later this year after the U.S. hit the debt ceiling.
Many of the provisions in Biden’s FY 2024 budget generally mirror some of his earlier proposals to expand the social safety net and pay for it by raising taxes on the wealthy and corporations. It includes several provisions that would raise taxes for those making more than $400,000, such as a tax on billionaires in the form of a 25% minimum tax on the wealthiest 0.01% of Americans.
But one of the more notable provisions in the budget as far as the retirement industry is concerned is the one that seeks to end the Mega-Roth IRA that the White House says allows the wealthiest Americans to accumulate large savings in tax-favored retirement accounts intended for middle earners.
Here is a description of the provision, as it appears in a White House Fact Sheet released today:
- Ending Loopholes that Let Billionaires Exploit Middle-Class Retirement Savings Incentives. Tax breaks for retirement savings are supposed to help middle-class workers put a little aside for the future. But some billionaires have used a loophole in the law to accumulate tens of millions of dollars in tax-favored retirement accounts – far in excess of what’s needed for retirement security – and never taking distributions from those accounts. The Budget limits the amount taxpayers with incomes over $400,000 can hold in tax-favored retirement accounts, along with other safeguards to prevent abuse of these accounts by some of the nation’s wealthiest individuals. These reforms will save $23 billion.
In a post today on LinkedIn, American Retirement Association CEO Brian Graff said the provision is a reboot of the proposal in the Biden Administration’s Build Back Better plan to place limits on retirement defined contribution account balances (including IRAs) above $10 million. “As a reminder, this proposal requires 50 percent of amounts above $10 million to be disgorged and 100 percent of amounts above $20 million to be disgorged,” Graff wrote, calling it a “bad idea.”
Ever since ProPublica reported in June 2021 that PayPal co-founder Peter Thiel owns a Roth IRA that had grown from less than $2,000 in 1999 to a staggering $5 billion in 2019, Democratic lawmakers have placed increased scrutiny on how some ultra-wealthy individuals have amassed huge fortunes in the tax-sheltered individual retirement accounts intended to provide retirement security to middle-class families.
Capital gains tax rate could rise to 45%
As Bloomberg points out, Biden’s proposed budget also would nearly double the rate of the capital-gains tax, and apply an additional surcharge to fund Medicare, which would mean taxes on investments could rise to almost 45%.
“The budget proposal would increase the capital-gains rate to 39.6% from 20% for people earning at least $1 million to equalize the taxation of investment and wage income. Biden is also proposing to increase the 3.8% Obamacare tax to 5% for those earning at least $400,000, in an effort to shore up the Medicare Trust Fund. That would mean the richest taxpayers would pay a 44.6% federal rate on investment income and other earnings,” writes Bloomberg’s Laura Davison.
Davison’s article analyzing provisions of the 182-page budget document also points out Biden wants to reverse a cut signed into law by former President Donald Trump by proposing to raise the top personal-income tax rate to 39.6%, from 37%, for those making more than $400,000.
Social Security “protected”
While the White House Fact Sheet says “the Administration is committed to protecting and strengthening Social Security and opposes any attempt to cut Social Security benefits for current or future recipients,” it stops short of outlining any specific reforms, saying only that “the Administration looks forward to working with the Congress to responsibly strengthen Social Security by ensuring that high-income individuals pay their fair share.”
Biden’s budget does include a 10% boost for the Social Security Administration, seeking to improve customer service by providing an increase of $1.4 billion over the 2023 enacted level.
White House claims budget would reduce deficit by $3T
In its statement on the FY 2024 Budget, the White House says it would reduce the federal deficit by nearly $3 trillion over the next decade. “The Budget achieves this deficit reduction while lowering costs for families, investing in our economy and our future, and protecting the most vulnerable Americans because it proposes tax reforms to ensure the wealthy and large corporations pay their fair share and tackles wasteful special interest giveaways,” the Fact Sheet reads.
House Republican leaders immediately condemned the Biden budget as a “reckless” in a joint statement, saying it doubles down on government spending that has led to record inflation and the current debt limit crisis.
“This is a spending problem, not a revenue problem,” said the statement, signed by Speaker Kevin McCarthy (R-CA), Majority Leader Steve Scalise (R-LA), Majority Whip Tom Emmer (R-MN), and GOP Conference Chairwoman Elise Stefanik (R-NY). “Yet President Biden’s unserious budget proposal includes trillions in new taxes that families will pay directly or through higher costs.”
SEE ALSO:
• ‘Explosion’ in Use of Mega-IRAs by Wealthy Revealed in New Data Released by Wyden, Neal
• Mega Roth IRA Ban Back in Biden Bill, But Not Until 2029
• Nikki Haley Proposes Changing Retirement Age
• Supreme Court Hears Arguments on Biden’s Student Loan Forgiveness Plan
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.