Mega-IRAs, Mega-401(k)s, and Other Mega-Retirement Accounts: Statement for the Record

The Senate Finance Committee’s hearing on July 28, 2021 -- Building Bipartisan Retirement Legislation: How Can Congress Help? spotlighted “mega-IRAs”: individual retirement accounts with balances of $5 million or more. An analysis by the Joint Committee Taxation in advance 28 found that number taxpayers mega-IRAs now exceeds 28,000. followed a June report nonprofit investigative journalism organization ProPublica, which revealed—based leaked IRS files—that handful high-net-worth individuals had accumulated massive IRA balances. The and ProPublica emphasized one way amass mega-IRAs: “stuffing” an account undervalued assets such as pre-IPO stock investment-fund carried interests. “Stuffing” no doubt occurs some instances, could take steps to stop it (e.g., prohibiting IRAs from holding non-publicly traded assets). However, is unlikely most result abusive stuffing tactics. Individuals engaged would generally want convert their traditional Roth quickly. Yet JCT’s 85 percent mega-IRA owners hold only accounts. How, then, have tens thousands high-income created mega-IRAs? As our submission shows, existing rules allow straightforwardly—and legally—by “maxing out” 401(k) defined contribution plans, potentially combining plans benefit investing S&P 500 index funds other publicly assets. Mega-IRAs are indeed problem, but they problem primarily caused laws lavish excessive tax benefits individuals. This statement for record begins illustrating how can create through entirely legal means. Next, we review choices has made over last quarter-century opened wide door mega-IRAs. We then explain why JCT data sources strongly suggest do not reflect stuffing. conclude concrete policy recommendations stem tide mega-retirement arrangements, undermine progressivity revenue-raising potential federal income system.