Paypal PYPL, +1.75% co-founder Peter Thiel’s $5 billion Roth individual retirement account balance has some members of Congress second-guessing the tax policies of these investment vehicles.
Massachusetts Democratic Representative Richard Neal, who chairs the House Ways and Means Committee, has requested a proposal to “stop IRAs from being exploited,” he told ProPublica, which first reported about Thiel’s Roth IRA. ProPublica’s report used tax documents to reveal the tech giant’s account grew from less than $2,000 in 1999 to $5 billion today, thanks in part to investments in private securities.
Neal told the news site the committee was looking to limit “the total amount of money that can be saved in tax-preferred retirement accounts,” he said.
“Incentives in our tax code that help Americans save for retirement were never intended to enable a tax shelter for the ultra-wealthy,” he said in a statement to ProPublica. “We must shut down these practices.”
Roth IRAs are funded with after-tax dollars, but investment growth and distributions are then tax-free (if distributed correctly). Roth IRAs have income limits that keep high-income earners from investing directly in these accounts, but there are ways around those restrictions, such as investing in a non-deductible traditional IRA and then converting those assets to a Roth. Individuals who do this must pay the income tax at the time of conversion, but can then benefit from the tax-free growth and distribution.
Neal isn’t the only critic of the ways in which some Roth IRAs are used.
Democratic Senator Ron Wyden, chairman of the Senate Finance Committee, has also proposed restricting contributions to Roth IRAs after they’ve reached $5 million, Bloomberg reported. He had first proposed this rule in 2016, but has since revisited it after news broke of Thiel’s account balance.
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Sen. Ben Cardin also supports a change to the system, ProPublica reported. The senator is “considering reforms, such as banning the use of IRAs to purchase nonpublic investments,” his spokesman told ProPublica.
Anthony Scaramucci, who briefly served as White House communications director during the Trump administration and is also founder and co-managing partner of SkyBridge Capital, said there will likely be a threshold imposed on these accounts. “I think that the goal for this stuff was to help middle-income people, lower-income people have a nest egg for their future,” he told CNBC.