The ultra-rich have kidnapped Roth IRAs. The chairman of the Senate for Finance has a troublesome eye on cracks. – ProPublica

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Senate finance committee chair Ron Wyden said Thursday he was reviewing the bill that would crack down on the huge tax-free retirement accounts amassed by the ultra-rich after a ProPublica story revealed that billionaires protected fortunes within them.

Lord of the Roths: How Tech Mogul Peter Thiel Turned a Middle-Class Retirement Account into a $ 5 Billion Tax-Free Piggy Bank

“I firmly believe that the IRA provides retirement security to working people and their families and is not just another tax evader enabling mega-millionaires and billionaires to avoid taxes,” said Wyden in an interview.

ProPublica reported Thursday that the Roth IRA, a retirement vehicle originally intended to boost middle class savings, was hijacked by the ultra-rich and used to create huge tax havens on land. Tax documents received from ProPublica showed that Peter Thiel, a co-founder of PayPal and an investor in Facebook, had a Roth IRA worth $ 5 billion as of 2019. According to the rules for the accounts, if he waits until he is 59 and a half years old, he can withdraw money from the account tax-free.

The story is part of ProPublica’s ongoing series about how the country’s richest citizens circumvent the country’s income tax system. ProPublica has received a wealth of IRS tax return data from thousands of the wealthiest people in the US for over 15 years. The records have enabled ProPublica this month to begin an unprecedented investigation into tax avoidance strategies for the ultra-rich that enable them to avoid taxes in ways that most Americans cannot.

Wyden said the ProPublica stories had shifted the grassroots tax debate and underscored a “double standard” that would result in a Medford, Oregon nurse dutifully paying taxes “with every single paycheck” while the richest Americans “just postpone, postpone, postpone paying their taxes almost forever.”

Wyden said, “Now Americans are with us on the proposal that everyone should pay their fair share, and in that sense the tax debate has really changed a lot.”

Wyden and others say the focus on recovering lost tax revenue comes at a critical time as lawmakers seek ways to fund President Joe Biden’s infrastructure plan and other domestic spending.

Wyden had been concerned for years that Roth IRAs were being abused by the ultra-rich. In 2016, he put forward a proposal that would have limited the amount of money that could be stowed in them.

“If I had come back in 2016, my law would have been passed, there would have been crackdown on those massive Roth IRA accounts built on assets from sweetheart deals,” said Wyden.

The proposal came to be known as the Pension Improvement and Saving Improvement Act. Owners of more than $ 5 million worth of Roth accounts would have had to withdraw money over time to limit the growth of the accounts. It would also have slammed a back door that would have allowed the rich to invest assets from less affordable retirement accounts in Roths. This maneuver, known as conversion, enables a taxpayer to convert a traditional IRA into a Roth after paying a one-time tax.

Ted Weschler, a deputy to Warren Buffett at Berkshire Hathaway, told ProPublica that he supports reforms to curb giant Roth IRAs like his. Weschler’s account hit the $ 264.4 million mark in 2018 after converting a whopping $ 130 million and paying a one-time tax years earlier, according to tax filings received from ProPublica.

In a statement to ProPublica earlier this week, Weschler did not go into a specific reform plan, but said: “Although I have been a huge beneficiary of the IRA mechanism, I personally don’t think the tax protection that my IRA gives me is necessarily good.” Tax policy. To this end, I openly support changing the performance of retirement accounts as soon as they exceed a certain threshold. “

Wyden’s proposal was also aimed at cramming undervalued assets into Roths, which had been identified as the basis of many large accounts by congressional investigators. Under the Wyden Bill, buying an asset at below market value would cancel the tax benefits of the entire IRA.

ProPublica’s investigation found that in 1999 Thiel bought the shares of the founder of the company that would become PayPal for $ 0.001 per share. At that price, he could buy 1.7 million shares and still fall below the maximum deposit limit of $ 2,000 that Congress set at the time of Roth IRAs. PayPal later announced in an SEC filing that these and other shares issued that year were being sold at “below fair value.”

A spokesman for Thiel took detailed questions on Thiel’s behalf last week, then never answered phone calls or emails.

The RISE Act was never introduced because the Republicans controlled the Senate at the time and made it clear they were against the effort, Wyden said. The proposal was also firmly opposed by non-traditional retirement supporters. One of them wrote at the time: “Everything about the RISE Act Proposal is against capitalism and economic freedom.”

Following on from ProPublica’s story about Roths, Senator Elizabeth Warren, D-Mass. Said the way to tackle the gigantic accounts would be a wealth tax that would impose an annual levy on households with net worth over $ 50 million .

Warren tweeted a link on the story, writing, “Yes, our tax system is rigged with loopholes and tax shelters for billionaires like Peter Thiel. And stories like this will keep popping up until we pass a simple #WealthTax on assets over $ 50 million to get these people to pay their fair share. “

Daniel Hemel, a professor of tax law at the University of Chicago who has studied great Roths, said Congress should simply prohibit IRAs from buying assets that are not bought and sold in the public market.

“There’s no reason people should gamble away their retirement savings on stocks before going public,” said Hemel.

He added that lawmakers should go beyond reforms aimed directly at the accounts and address a potential estate tax rebate related to Roths.

If the owner of a large Roth dies, the retirement account is considered a taxable estate and a substantial tax is due. But, said Hemel, nothing prevents an American who has amassed a huge Roth from giving up his citizenship and moving abroad to a country with no inheritance tax. It’s rare, but not uncommon, for the ultra-rich to give up their US citizenship to avoid taxes.

Under federal law, U.S. citizens who give up their citizenship will be taxed on increased but unsold assets that day. However, there is an exception for certain types of assets, Hemel said, including Roth retirement accounts.

Thiel acquired New Zealand citizenship in 2011. Unlike the United States, New Zealand has no inheritance tax. It is not clear whether inheritance taxes played a role in Thiel’s decision.

A spokesman for Thiel did not immediately respond to questions on Friday whether the inheritance tax was taken into account in Thiel’s decision to become a New Zealand citizen.

In his application for citizenship, Thiel wrote to a government minister: “I have long admired the people, culture, business environment and government of New Zealand and the encouragement that investment, business and trade receive in New Zealand.”

Closing the loophole in the expatriation law, said Hemel, “should have top political priority because we are talking about billions of dollars in taxes with Thiel alone.”

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