Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, August 25, 2021

Mega-IRAs, Boon or a Bane?

Albert Feuer recently posted an updated version of his article, Mega-IRAs, Boon or a Bane?, on SSRN. The article also appears in 49 Comp. Plan. J. No. 8, 179 (2021). Here is the abstract of this article:

Peter Thiel reportedly converted a 1999 Roth IRA investment of $1,700 in PayPal “founder’s shares,” into assets that appeared to be worth $7 billion on June 30, 2021. There are serious questions whether this IRA and other Mega-IRAs are entitled to the IRA tax benefits. The IRS should have the resources to challenge the tax exemption of any Mega-IRAs appearing to violate the current law. These Mega-IRAs will disappear when the IRS prevails. There should also be statutory changes to direct tax incentives not at Mega-IRAs and their owners, but at improving the retirement readiness of American working families. This was why traditional and Roth IRAs were introduced and why they are called individual retirement accounts. The following common-sense changes would help achieve this goal by narrowing the retirement savings focus of retirement tax incentives:

(1) All the IRAs of an individual whose traditional IRAs, Roth IRAs and designated Roth 401(k) IRAs have an aggregate value in excess of $5 million at the end of any calendar year shall be called Mega-IRAs and should lose their tax qualification if the Mega-IRAs do not distribute half of the excess by the end of the following year;

(2) All of an individual’s Mega-IRAs should lose their tax-qualification if the individual makes any contributions to any Mega-IRA for the following calendar year;

(3) The minimum required distribution rules applicable to traditional IRAs and designated Roth 401(k) IRAs should apply to Roth IRAs, i.e., annual distributions should start by April 1 of the year following the year, if any, the participant reaches age 72; and

(4) The annual excise tax for excess contribution to any IRA should be increased from 5% to 10% and should apply to the earnings associated with any excess contributions for the year at issue, rather than only to the excess contributions, as is now the case.


Articles, Estate Planning - Generally, Non-Probate Assets | Permalink


These IRAs were encouraged with the hope that, among other things, they would spur capital formation. Now here come proposals to penalized those IRA owners whose IRAs have most succeeded in doing exactly that. The problem being solved here is not self evident.

Posted by: Joseph W. Mooney III | Aug 28, 2021 9:54:51 AM

Post a comment