Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, released a discussion draft of proposed legislation that would prevent taxpayers from putting more than $5 million in an individual retirement account.

The draft legislation, dubbed the Retirement Improvements and Savings Enhancements (RISE) Act, aims to help more working families and recent college graduates save for retirement, while cracking down on strategies used by wealthy taxpayers to defer taxes by placing their assets in so-called “mega Roth IRAs.”

Wyden’s office pointed to figures from the National Retirement Risk Index that showed the average IRA account had only a little more than $25,000 as of 2013, and an estimated 60 percent of all households had nothing saved in an IRA or 401(k).

Conversely, according to a recent report from the Government Accountability Office, 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 the Roth IRAs totaled between $8 billion and $13 billion. “Mega Roth IRAs” frequently contain specially-acquired assets that appear to be worth very little before exploding in value, according to Wyden’s office. The RISE Act draft would prohibit further contributions to a Roth IRA if its total value exceeds $5 million.

“Taxpayers are pouring dollars into incentives for retirement savings, but still far too many Americans struggle to set money aside after they cover the basics,” Wyden said in a statement. “Tax incentives for savings ought to be available to more working families and more generous to the middle class. A lot of recent college grads are buried under thousands of dollars in student loan debt, but paying down your student loans shouldn’t mean you lose out on the opportunity to save with an employer match. It’s time to face the fact that our tax code needs a dose of fairness when it comes to retirement savings, and that starts with cracking down on massive Roth IRA accounts built on assets from sweetheart, inside deals. Tax incentives for retirement savings are designed to help people build a nest egg, not a golden egg.”

The issue drew attention four years ago during the 2012 presidential campaign when Mitt Romney’s tax returns revealed that his IRA held between $18.1 million and $87.4 million and at one point exceeded $100 million. After President Obama won re-election, his next budget proposed to limit the size of IRAs to a maximum of $3 million (see Obama’s Budget Would Cap Romney-Sized Retirement Accounts).

Along with cracking down on “mega Roth IRAs,” the draft proposal would enable employers to make matching contributions to a 401(k) retirement plan while their employees make student loan repayments. Under this proposal, recent graduates who cannot afford to save money above their student loan repayments would no longer have to forego the employer match.

The draft legislation would also make the Saver’s Credit refundable so it would be available to Americans with no income tax liability. The bill would simplify the structure of the Saver’s Credit, requiring the credit amount to be contributed directly to a tax-favored retirement plan and increase its income cap. 

In addition, the bill would eliminate Roth conversions for IRAs and employer-sponsored plans to prevent taxpayers from getting around the income limits. The draft would eliminate “stretch IRAs” to prevent taxpayer-subsidized retirement accounts from being used as estate-planning tax breaks.

It would also gradually increase the age at which retirement plan participants would need to begin taking distributions from their retirement accounts. Wyden’s office pointed out that the “required minimum distribution” age of 70.5 years has remained unchanged since the early 1960s. The draft specifies that IRA participants who reach the required age with balances in their retirement plans of less than $150,000 would not be required to begin taking distributions.

The discussion draft is a legislative proposal that is being circulated to members of Congress, federal officials and others for review and comment. Wyden’s office plans to review the comments and, if appropriate, use them in the legislation. Comments on the proposal can be sent to Retirement_Savings@finance.senate.gov. Wyden's office has posted a one-page summary of the proposal, a more detailed summary, and the actual text of the draft legislation.

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