Mega-IRAs Could Be a Source for New Public Policies

Congressional Democrats are considering new required distribution rules for individual retirement accounts based on account value rather than age, according to policy proposals obtained by CNBC.

The proposal targets “mega” IRAs exceeding $5 million, which have become significant tax shelters for wealthy individuals. The concept emerged from a broader legislative effort to fund a $3.5 trillion expansion of the nation’s safety net through various tax measures.

Current Landscape

The number of mega IRA accounts has tripled over the past decade. By 2019, more than 28,600 taxpayers held IRAs worth over $5 million—less than one-tenth of one percent of the 70 million Americans with traditional or Roth IRAs. These mega accounts represent approximately $280 billion, or 3% of the total $8.6 trillion in IRAs.

The average American IRA is valued at around $39,000, highlighting the disparity.

The proposal was reportedly inspired by revelations that a PayPal founder’s Roth IRA had grown to approximately $5 billion.

Historical Context

Efforts to limit tax-deferred retirement account accumulation are not new. Congress has previously attempted to cap IRA amounts and modify distribution rules.

Potential Response Strategy

One strategy for individuals with large IRAs would be converting traditional IRAs to Roth accounts. By paying taxes at conversion—potentially over time—individuals could eliminate future tax obligations on withdrawn funds. Additionally, Roth IRAs have no Required Minimum Distributions, allowing funds to grow tax-free throughout the owner’s lifetime.

If you have questions about how changing IRA rules may affect your retirement and estate planning, contact our office to schedule a consultation.