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Retirement Planning > Saving for Retirement > IRAs

Should Congress Cap Roth IRA Balances?

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What You Need to Know

  • As lawmakers consider possible limits on Roth IRAs, planner Jeffrey Levine suggests a $10 million cap on account balances.
  • The Roth IRA “is a wealth transfer from taxpayers to subsidize spending in retirement,” Michael Finke says.
  • Others object to changing the rules just because a few people reaped huge benefits.

A Twitter debate kicked into high gear after House Ways and Means Committee Chairman Richard Neal, D-Mass., said his committee is mulling legislation to limit “the total amount of money that can be saved in tax-preferred retirement accounts.”

Neal told ThinkAdvisor that such a bill would put “an end to the tax dodging some do when saving in IRAs,” and that “incentives in our tax code that help Americans save for retirement were never intended to enable a tax shelter for the ultra-wealthy.”

He referred to a recent ProPublica report revealing that tech mogul Peter Thiel has amassed $5 billion in a Roth IRA that he had used to invest in a nascent PayPal.

The Ways and Means Committee, Neal said, “is working on legislation that will stop IRAs from being exploited.”

Jeff Levine, chief planning officer at Buckingham Wealth Partners, proposed in a tweet a “very simple and fair solution” to Neal’s plan: “Pick a dollar amount. Make it high. Very high. Maybe $10MM to start and adjust it for inflation. Rule: If your Roth > $10MM on 12/31, the excess becomes an RMD next year. $10MM should cover RETIREMENT expenses.”

Aaron Klein, CEO of Riskalyze, tweeted in response: “That’s actually a pretty great and fair solution. So yes, it’ll never fly in DC.”

However, Scott Salaske, CEO of FirstMetric, countered: “Why do we need to change any rules or put any caps on Roth IRAs just because some billionaires benefited as lawmakers did not contemplate? Why should everyone be punished-especially those who did conversations & estate planning over the years relying on current rules?”

Christopher Flis, financial planner at Resilient Asset Management in Memphis, tweeted back: “Plus, isn’t Mr. Thiel’s Roth IRA balance sort of an outlier. Do we really want to legislate based on one person’s IRA balance?”

Michael Finke, a professor and Frank M. Engle Chair of Economic Security at the American College of Financial Services who leads the Wealth Management Certified Professional designation program, argued in his tweet that the Roth IRA “is a wealth transfer from taxpayers to subsidize spending in retirement. The policy should be judged (and refined) according to this objective. If some take advantage of the program in ways policymakers never anticipated, this is a transfer from you and I to them.”

Read the entire thread here.