‘Mega-IRAs’ a focus of lawmakers looking to address inequality
/According to Congress’s nonpartisan Joint Committee on Taxation, more than $279B sits in ‘mega-IRAs’, or individual retirement accounts with at least $5M each. Some lawmakers are putting these under closer scrutiny, since despite guardrails around IRA contributions from the wealthy, around 500 have more than $25M in their IRAs. This allows them to pass on their wealth to other generations tax-free.
Why should we care?
An approved tax plan for the Ways and Means Committee would cap tax-free exemptions to $10M, which could thwart the flow of funds into large IRA accounts. IRAs are seen as ways to counteract heavier tax burdens on the wealthy that could come down the road. But there is concern around the use of tax-sheltered vehicles like IRAs by well-to-do investors, because these tools were intended for consumers with considerably less cash to put away for retirement. By imposing a lower cap on tax-sheltered contributions, lawmakers intend to reduce some of the retirement inequity between affluent and middle-class consumers. “Mega-IRAs are a symptom of an even more serious disease: a retirement savings system that disproportionately favors the rich,” Urban-Brookings Tax Policy Center senior fellow Steven Rosenthal and University of Chicago law professor Daniel Hemel said.