Paul L. Caron

Monday, October 13, 2014

Congress, GAO Target ‘Supersize’ IRAs

Super Size MeFollowing up on my previous posts:

Wall Street Journal Tax Report:  Washington Scrutiny of ‘Supersize’ IRAs, by Laura Saunders:

Washington is taking a hard look at tax-sheltered retirement accounts, especially “supersize” ones worth millions of dollars. Savers should consider what it could mean for them.

The U.S. Government Accountability Office, an arm of Congress, recently released a report on individual retirement accounts, requested by Senate Finance Committee Chairman Ron Wyden (D., Ore.). Its publication coincided with Senate hearings on retirement savings held last month.

The GAO study addressed questions many people asked after disclosures that former presidential candidate Mitt Romney had a traditional IRA worth as much as $101 million and technology entrepreneur Max Levchin put more than 13.3 million shares of Yelp YELP -5.11% stock in a Roth IRA before the firm went public in 2012.

How many supersize IRAs are there? The GAO estimates more than 300 individuals or families have IRAs with balances greater than $25 million, while more than 9,000 have IRAs worth more than $5 million. The GAO wasn’t able to distinguish between regular and Roth IRAs, given the data. ...


How can IRAs grow so big? The GAO study said that to accumulate $5 million in an IRA by making the highest allowed individual contributions from 1975 to 2011, the assets would have needed to generate an average annual return of 18%. (Over that period, the study said, the average annual return of the S&P 500 was about 7%.)

The final version of the GAO report, due in a few weeks, will address strategies investors use to supersize their IRAs. Such moves include using account assets to buy nontraded stock or partnership interests that could balloon in value once inside the account, experts say. ...

So far, experts say, none of the current proposals would impose a tax on assets that already are in retirement plans, although several would curtail contributions from higher-bracket taxpayers.

The bottom line: if you have an IRA that holds nontraded assets, make sure to cross every “T” and dot every “I” for the IRS. Don’t count on your IRA surviving you for many decades. And consider maximizing contributions to tax-sheltered retirement plans now, while the tax benefits for contributions are intact.

Congressional News, Gov't Reports, Tax | Permalink