Million Dollar Retirement Accounts Have Tripled In A Decade
Roth IRAs were established in 1997 to incentivize middle-class Americans to save for retirement. Congress imposed strict limits, including a cap on how much can be contributed to the accounts each year, which today stands at $6,000 for most Americans. The average Roth account was worth $39,108 at the end of 2018, but we are also in the midst of an era of million dollar retirement accounts.
Justin Elliott, James Bandler, and Patricia Callahan of ProPublica outline how some of our wealthiest Americans are taking advantage of Roth IRAs in ways the Congress and the IRS did not originally intend:
But a select set of the ultrawealthy have managed to get around limits set by Congress and transformed the vehicle into a powerful onshore tax shelter. One way they’ve done that is by buying nonpublic shares of companies with extremely low valuations. That allows them to tuck a huge volume of shares into a retirement account. Congressional investigators have previously found that the IRS has struggled to enforce rules around these investments, including whether the valuations are legitimate.
Once money is deposited into a Roth account, any proceeds from investment gains are tax free. So, for example, a Roth owner who sells a successful tech investment for a $1 million profit gets to keep all of the money, saving a potential $200,000 in federal taxes. The savings can then be reinvested, tax free, as long as the Roth holder waits till he or she is at least 59 and a half before withdrawing the money. Owners of traditional IRAs, by contrast, enjoy tax-free growth but must pay income tax on withdrawals. The Roth is considered the more powerful tax-avoidance tool for the wealthy.
Million Dollar Retirement Accounts
Today, there is more than $15 billion held by just 156 Americans in tax free Roth IRA accounts. The number of Americans with traditional and Roth IRAs worth over $5 million tripled, to more than 28,000, between 2011 and 2019 with tech mogul Peter Thiel having the largest known Roth IRA, worth $5 billion as of 2019.
As of 2019, nearly 3,000 taxpayers held Roth IRAs worth at least $5 million. (The total of more than 28,000 people holding IRAs of that size includes both traditional and Roth IRAs.) The aggregate value of those Roth IRAs was more than $40 billion. One reform that is being discussed in Congress would prohibit investors from putting assets that are not available to ordinary Americans, such as shares of startup companies, into retirement accounts.