Remember the Romney IRA? Now there’s a new hue and cry and it could spell trouble for Roth IRAs, and Roth IRA conversions.
The trouble began last Thursday when ProPublica published an article lengthily titled, “Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Tax-Free Piggy Bank.” Thiel is founder of PayPal (he’s also said to be a Lord of the Rings fan, hence the reference), and the report claims that, “over the last 20 years, Thiel has quietly turned his Roth IRA” (which the article characterizes as “a humdrum retirement vehicle intended to spur Americans to save for their golden years) … into a gargantuan tax-exempt piggy bank,” citing confidential IRS data. Basically that his retirement account worth less than $2,000 in 1999 is now a $5 billion “windfall.”
Thiel isn’t the only billionaire mentioned in the article. Others with enormous Roth IRA accounts include Warren Buffett ($20.2 million) and hedge fund manager Randall Smith ($252.6 million).
It’s worth noting that nobody is doing anything illegal here—the strategy appears to be that you open a Roth IRA the standard way, then invest in something that explodes in value. For then-presidential candidate Mitt Romney, his $100 million IRA benefited from investments in private equity, ostensibly the kind of investments regular folks don’t have access to. (Thiel is said to have invested in start-ups.) This led to an analysis by the Government Accountability Office (GAO) and a congressional hearing chaired by Sen. Ron Wyden (D-OR).
That’s the same Sen. Wyden who in 2014 claimed that “incentives for savings in the tax code are not getting to the people who need them,” and that it was “clear that something is out of whack” with a system that he said taxpayers are “subsidizing” to the tune of $140 billion a year. The same Sen. Wyden who in 2016 circulated a draft bill to eliminate Roth conversions for both IRAs and employer-sponsored retirement accounts, as well as eliminating stretch IRAs. And yes, the same Sen. Wyden who, commenting on the disclosures in the ProPublica report this past week, said, “I feel very strongly that the IRA was designed to provide retirement security to working people and their families, and not be yet another tax dodge that allows mega millionaires and billionaires to avoid paying taxes.”
Stay tuned…