Senate Finance Committee Chairman Ron Wyden is considering reviving a proposal that would limit how much wealthy individuals can shield retirement savings from taxes, after a ProPublica report that Peter Thiel had amassed $5 billion in a tax-free account.
Wyden, the Democrat who controls the Senate’s tax agenda, said he would revisit his 2016 proposal that would prevent people from contributing to Roth individual retirement accounts once they’ve reached $5 million in value.
“IRAs were designed to provide retirement security to middle-class families, not allow mega-millionaires and billionaires to avoid paying taxes,” Wyden said in a statement Thursday. “As we continue to look at ways to make the tax code more fair and finance critical investments in the American people, I’ll be revisiting this proposal.”
ProPublica reported that in 1999, Thiel, the co-founder of Paypal Holdings Inc., placed 1.7 million shares of then-private PayPal into his Roth Ira. They were valued at $0.001 per share, meaning the contribution was under the $2,000 limit at the time.
The shares soon exploded in value and Thiel also used his Roth to make investments in Facebook Inc. and Palantir Technologies Inc. ProPublica said its reporting was based on confidential Internal Revenue Service information and that Thiel didn’t respond to their requests for comment.
Investment gains in Roth accounts aren’t taxed and the accounts are subject to contribution limits, set at $6,000 for most taxpayers this year. The rules are designed to limit the benefits to middle-class taxpayers.
However, wealthy taxpayers, like Thiel, are able to skirt the contribution limits by placing stock or other assets into the account before they have gained much value, so they can grow tax-free inside the Roth IRA.
Wyden’s idea could gain traction as Democrats begin to finalize their plans for a package of tax increases on corporations and the wealthy later this year to fund trillions of dollars of new spending on child care, housing and education. That package will be subject to months of negotiations before it could face a vote in Congress.
Wyden’s plan would also prohibit taxpayers from putting under-valued assets into their accounts and provides additional incentives for middle-class taxpayers to save for retirement.
Wyden’s idea to cap Roth IRA contributions after $5 million in assets would affect a narrow swath of wealthy taxpayers.The Government Accountability Office issued a report in 2014 that found that less than 0.1% of households—approximately 6,000 to 10,000 taxpayers—had aggregated IRA balances, including Roth, of $5 million to $10 million. GAO has urged Congress to more closely scrutinize how top-earners can use Roth accounts.
ProPublica this month reported they obtained tax records on thousands of rich Americans covering more than 15 years. It outlined the tax strategies available to the top 0.1%, including Jeff Bezos, Elon Musk and Bloomberg LP founder Michael Bloomberg, founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
—With assistance from Ben Steverman.
This article was provided by Bloomberg News.