Ever since ProPublica reported in June 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, 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.
Senate Finance Committee Chair Ron Wyden, (D-OR) and House Ways & Means Committee Chair Richard E. Neal, (D-MA) released new data on July 28 requested from the Joint Committee on Taxation (JCT) on the prevalence of “mega-IRA” accounts.
The data provides an update to a 2014 Government Accountability Office (GAO) report requested by Wyden, long a staunch advocate for cracking down on massive Roth IRA accounts. The GAO report, which used 2011 tax data, showed nearly 8,000 taxpayers had aggregate IRA account balances of $5 million or more.
The new JCT data show a threefold increase in aggregate IRA account balances of $5 million of more. As of the 2019 tax year, more than 28,000 taxpayers had aggregate IRA account balances of $5 million or more, and 497 taxpayers have aggregate IRA account balances of $25 million or more. The average aggregate account balance for these 497 taxpayers was more than $150 million.
“It is shocking, but not surprising, to see how the use of mega-IRA accounts by mega-millionaires and billionaires has exploded,” Wyden said. “IRAs were designed to provide retirement security to middle-class families, not allow the super wealthy to avoid paying taxes. This is the perfect example of what I’ve long called the tale of two tax codes. On one hand, there are 100 million Americans with no benefits in retirement plans or savings in retirement accounts like IRAs. On the other hand, the top 497 IRA owners have an average aggregate account balance of more than $150 million each. As the Finance Committee continues to develop proposals to make the tax code more fair, closing these loopholes will be a top priority.”
Neal said the new data clearly indicates that the exploitation of IRAs is a growing problem.
“IRAs are intended to help Americans achieve long-term financial security, not to enable those who already have extraordinary wealth to avoid paying their fair share in taxes and deepen existing inequalities in our nation. The Ways and Means Committee is already looking at strategies to ensure that this retirement savings tool isn’t misused as a tax shelter for folks at the very top.”
The ProPublica story detailed how Thiel took a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall by using stock deals unavailable to most people, and how under current tax law, “as long as Thiel waits to withdraw his money until April 2027, when he is six months shy of his 60th birthday, he will never have to pay a penny of tax on those billions.”
It also named a few other high-profile wealthy individuals with loaded Roths, including Ted Weschler, a deputy of Warren Buffett at Berkshire Hathaway, with $264.4 million in his Roth account at the end of 2018, and hedge fund manager Randall Smith of Alden Global Capital with $252.6 million in his.
Stay tuned for proposed tax code legislation in Congress aiming to close Roth IRA loopholes. Wyden attempted to address the issue with legislation in 2016, but abandoned it with no chance of the Republican-controlled Senate at the time passing it. Now, with the Democrats in control and the new data revealing the huge increase in mega-IRA accounts and balances, there may be a sufficient appetite on Capitol Hill to take action.
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