The Hill Op-Ed: If plans to cut IRAs succeed, the middle class will be collateral damage

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By: Mark Warshawsky

Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means chair Richard Neal (D-Mass.) are working on legislation to limit the size of Individual Retirement Accounts (IRAs) over $5 million. Media accounts have reported that this effort could be part of a search for funding for the $3.5 trillion “human infrastructure” legislation. The move is also, per Wyden, a direct reaction to investigative reports by ProPublica, based on leaked individual tax returns revealing the highly fortunate capital appreciation of newly issued stock held in the Roth IRA of one particular billionaire.   

Limiting billion dollar IRAs, despite the policy’s visceral appeal, will not produce that much revenue on a sustained basis, because there are so few. So the outrage is now being transferred to more numerous IRAs holding millions, as shown in statistics on IRAs requested from the Joint Committee on Taxation. What the chorus demanding reform does not realize is that commonplace government pensions — which are allowed by law with no proposals for change, and largely not controversial — are easily worth those sorts of amounts. 

Consider, for example, a 55-year-old police chief of a large city earning $290,000 a year; let’s assume he has 32 years less three months of service, and has been chief for three years. He decides to retire now at the full retirement age of his municipality’s pension plan (age 55 or 30 years of service are common full retirement provisions in many government plans), so there is no reduction in his payout for early retirement. With a 2.5 percent annual accrual rate (again, not uncommon), his annual benefit will be $230,000, at the current IRS benefit limit on defined benefit pension amounts.  

Read the full op-ed here.

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