Series: The Secret IRS Files Inside the Tax Records of the .001% ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published. Legislation currently making its way through Congress would take a sledgehammer to the massive individual retirement accounts built up tax-free by a select group of the ultrawealthy. The proposal, which is part of the infrastructure and tax package advancing in the House, targets the jaw-dropping IRAs accumulated by multimillionaires and billionaires such as tech investor Peter Thiel, which were first reported by ProPublica earlier this year. Those accounts — Thiel’s alone was worth $5 billion in 2019 — have allowed some super-wealthy Americans to turn their Roth IRAs, tools meant to incentivize middle-class retirement saving, into supersized tax shelters. ProPublica Get Our Top Investigations Subscribe to the Big Story newsletter. Thanks for signing up. If you like our stories, mind sharing this with a friend?®ion=national Copy link For more ways to keep up, be sure to check out the rest of our newsletters. See All Fall Member Drive: Hold the powerful to account. Donate Now The proposed reform, put forward by House Ways and Means Chairman Richard Neal, D-Mass., would effectively cap the total amount someone could hold in a Roth at $20 million and compel the holders of the giant accounts to withdraw anything over that limit. Separately, individuals would have to add up the balances of their retirement accounts — including Roths, traditional IRAs, 401(k)s and 403(b)s — and every year withdraw half of any amount over $10 million. The provisions would only apply to individuals with taxable income of over $400,000 or couples making over $450,000. The reform wouldn’t affect the overwhelming majority of Americans, whose retirement savings (if they have any) are far more modest — the average Roth was worth just $39,108 at the end of 2018. “Incentives in our tax code that help Americans save for retirement were never intended to enable a tax shelter for the ultra-wealthy,” Neal said earlier this year. “We must shut down these practices.” Should the bill pass, it could have profound implications for PayPal founder Thiel, whose gargantuan Roth stunned lawmakers, spurring Neal to vow a crackdown. Thiel wouldn’t owe any tax up front and no early withdrawal penalties would apply, but he’d be required to move billions out of the tax-advantaged account. And any gains on investments made with that money would no longer be sheltered from taxes, potentially creating hundreds of millions of dollars in future tax liabilities. The great appeal of the Roth IRA is that once money is inside it, any income generated — such as capital gains from selling a stock, investment interest or dividends — is tax-free, as long as the holder waits until he or she is 59 and a half to withdraw it. (Thiel hits that mark in 2027.) In a traditional IRA, by contrast, money that’s withdrawn counts as income and is taxed. The IRA reforms are part of a slate of proposals designed to eliminate loopholes and boost tax rates on rich individuals and corporations. Several of the changes address revelations contained in The Secret IRS Files, a series of ProPublica stories published this year that are exploring the ways the very richest Americans avoid paying taxes. Usually such efforts remain secret, but ProPublica has obtained a trove of tax records covering thousands of the country’s richest people. The records reveal not only the diverse array of tax-avoidance techniques used by the rich, but also that some of the very richest have consistently found ways to avoid taking income, so they pay little or no taxes, even as their wealth multiplied to historic levels. The current House plan falls short of President Joe Biden’s more ambitious proposals to combat wealth inequality through the tax code. But experts say it would significantly increase the taxes paid by high-income Americans. Among other things, it would all but eliminate a major deduction created by President Donald Trump’s 2017 tax law that, as ProPublica recently reported, showered massive tax breaks on some of the richest families in the country. Given the stakes for a small group of wealthy and powerful Americans, it’s unclear whether the IRA proposal, along with the rest of the package, will become law. It must pass the House and make it through the Senate, where it will likely need the votes of all 50 Democratic senators to pass. Capitol Hill staffers say the bill remains fluid and provisions could still be cut, added or modified. For now, however, the proposal has alarmed those who stand to lose the most. Three tax lawyers told ProPublica that clients with giant IRAs have reached out to them, worried about the potential reforms. Already a lawyer and an accountant are offering a paid . . . read the full article here.