Senate Finance Committee Ranking Member Ron Wyden, D-Oregon, released a “discussion draft” of the Retirement Improvements and Savings Enhancements Act (RISE Act)—aimed at boosting savings while combatting what he describes as critical imbalances in retirement-related tax incentives.
According to Wyden, the RISE Act as proposed would help more working families and recent college graduates save for retirement, while “cracking down on unfair strategies used by the privileged to rake in subsidies and dodge tax bills with so-called mega Roth IRAs [individual retirement accounts].”
Explaining his motivation for introducing the RISE Act, Wyden says the existing tax incentives for retirement savings, which he suggests will add up to more than $1 trillion over the next five years, represents the second-largest subsidy in the U.S. tax code. Yet, the majority of Americans still clearly struggle to save amounts at all sufficient to meet retirement spending projects, he observes. Even on health care spending in retirement alone, expenses are anticipated to far outstrip what most Americans have save or expect to be able to save.
“According to the National Retirement Risk Index, the median IRA account contained only slightly more than $25,000 as of 2013,” Wyden says. “An estimated 60% of all households had nothing saved in an IRA or 401(k). Meanwhile, a recent GAO report found that between 2,000 and 5,000 taxpayers had balances in IRA accounts, including Roth IRAs, of more than $5 million in 2011. The estimated value of those taxpayer-subsidized Roth IRAs totaled between $8 billion and $13 billion.”
This is the “Mega Roth IRA” problem, Wyden says, highlight that the creation of these accounts is often the result of an account holder “seeding an account with specially-acquired assets that appear to be worth very little before exploding in value.” The RISE Act draft released would, according to Wyden, “prohibit further contributions to a Roth IRA if its total value exceeds $5 million.”
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