The top Democrats on the tax-writing Senate Finance and House Ways & Means Committees have introduced legislation to scale back on multi-million dollar IRAs that they say are used primarily as tax shelters rather than as retirement savings vehicles. Introduced by ranking members Sen. Ron Wyden (D-OR)/Finance and Rep. Richard Neal (D-MA)/Ways & Means, S. 5040 and H.R. 9813 would:
Prohibit further contributions to all IRAs (Roth and traditional) when an impacted individual’s total IRA and defined contribution retirement plan vested account balances exceed $10 million for the prior year. An impacted individual is one whose modified adjusted gross income is $400,000 or more/single, $450,000 or more/married, or $425,000 or more/head of household.
Impose a minimum required distribution of 50 percent of the amount by which the impacted taxpayer’s aggregate retirement account balance exceeds the $10 million limit.
Impose an additional 100 percent minimum distribution requirement on aggregate retirement account balances of the amount equal to the level necessary to bring the combined account balance down to $20 million.
Create rules regarding from which retirement plans these minimum required distributions must be taken. Generally, the distributions must come first from Roth IRAs or Roth accounts in a defined contribution plan.
The legislation is prospective—its effective date is for tax and plan years beginning after December 31, 2033
This “tax-the-rich” proposal is narrower than most and is targeted at the kind of IRA that is initially set up and funded with start-up stock that is valued below the annual IRA contribution limits, but can (and sometimes does) grow exponentially into mega-million dollar values. Sen. Wyden and Rep. Neal point out that as of the end of 2024, only 208 individuals held a total of $85.1 billion in tax-sheltered retirement accounts, with an average balance of $408 million each. They also said that more than 32,000 individuals held more than $10 million each in a tax-sheltered retirement account with an average balance of $17 million each.
Prospects: If Democrats wrest control of Congress from Republicans after the November mid-term elections, there is a good chance that this legislation—or something like it—will be in the mix as Congress seeks to start to control spiraling federal deficits and/or pay for social safety net programs. If partisan control shifts in 2027, there will be a wide variety of tax-the-rich proposals, but this one because it is more narrowly-targeted has a better chance than broader proposals of finding its way into enacted legislation. There will be opposition, of course, and it is by no means certain that this legislation will be enacted into law—but it has better odds than most tax-the-rich proposals.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org