MarketWatch: ‘People are upset.’ Will proposed IRA tax changes targeting the rich hurt smaller nest eggs?


By: Andrew Keshner

The Ways and Means Committee’s proposed tax law changes zero in on how the super-rich use self-directed individual retirement accounts (IRAs).

Months after a story broke detailing the $5 billion that could come out of Peter Thiel’s retirement account tax-free, new tax proposals are aiming to put a stop to the practice of very wealthy investors taking advantage of favorable tax laws on IRA accounts.

The changes offered by Congressional Democrats on the Ways and Means Committee would require super-rich households to tap some of their money and end their ability to switch to accounts with tax-free distributions.

The proposal would also block individual retirement accounts from certain types of investments that are usually reserved for more sophisticated investors, including stakes in private business or real estate deals.

To hold onto the IRA’s tax advantages, anyone who already holds these types of investments faces a two-year window get them out of the account, the proposal says. In its current wording, the proposal doesn’t specify whether the rules restricting these types of investments would only apply to people above a certain income threshold.

The provisions are aiming at financial big-timers who supposedly use retirement-related tax rules to unfairly sock away more and more wealth — but could they hit the little guy’s nest egg instead?

That’s what critics say when it comes to the rule changes on what type of investments are allowed inside IRAs. Others backing the changes have their doubts. Now it’s a question how far the proposals get.

Read the full story here.

Categorized as Blog