IRS is looking at your largeish IRA

[Independent]

Quote:

We are making five recommendations to the Commissioner of Internal Revenue. To improve IRS’s ability to detect and pursue noncompliance associated with undervalued assets sheltered in IRAs and prohibited transactions, we recommend that the Commissioner of Internal Revenue: • Approve plans to fully compile and digitize the new data from electronic and paper-filed Form 5498s to ensure the efficient use of the information on nonpublicly traded IRA assets. • Conduct research using the new Form 5498 data to identify IRAs holding nonpublic asset types, such as profits interests in private equity firms and hedge funds, and use that information for an IRSwide strategy to target enforcement efforts. • Work in consultation with the Department of the Treasury on a legislative proposal to expand the statute of limitations on IRA noncompliance to help IRS pursue valuation-related misreporting and prohibited transactions that may have originated outside the current statute’s 3-year window. To help taxpayers better understand compliance risks associated with certain IRA choices and improve compliance, we recommend that the Commissioner of Revenue: • Building on research data on IRAs holding nonpublic assets, identify options to provide outreach targeting taxpayers with nonpublic IRA assets and their custodians, such as reminder notices that engaging in prohibited transactions can result in loss of the IRA’s tax-favored status. • Add an explicit caution in Publication 590 Individual Retirement Arrangements (IRAs) for taxpayers about the potential risk of committing a prohibited transaction when investing in nonpublicly traded assets or directly controlling IRA assets.

Looks like the issue is not "largish IRAs", but rather IRAs invested in "nonpublicly
traded assets".

I'll call this the [mod edit] effect.

[target2019]

Quote:

Originally Posted by 2B The unfortunate aspect of any tax intended for "the rich" inevitably falls on the middle class sooner rather than later. There really isn't that much money available if any tax is just restricted to "the rich." I think that the original intent of the income tax was to just hit the top 2%. How'd that work out for all of us?

I don't really go along with that line of thinking, if you mean taxation isn't fair, or required at all. I can't go back in time to really understand what was going on at some time when a 2% tax (Wilson-Gorman?) was passed, but abuse of power and privilege is ascending. And wages are stagnating. So there have always been good reason to tax the excess and fund something worthy.

Most of us comply with tax law and add something to an IRA. I remember putting $1500 or so into my IRA for quite awhile. I amassed a fortune of $41,590.51 by 1994. It is still growing, and I have contributed when I can, but my total is probably way short of many others.

I know I'm one of the dumb ones who really needed the gov't to come up with some kind of sweetener to convince me to save, and I am fine with that. But how does one accumulate over $100 million in an IRA? Some of the figures in the OP article and others I've read are astounding.

[Hamlet]

I think the issue that they need to address is the people who put non-publicly traded securities in them with a stated valuation that is much, much lower than their actual value. Basically, they lie to get around the normal contribution limits.

That is how they are getting these massive IRA balances, for the most part.

They just need to limit what you can put into an IRA to publicly traded securities, IMO. It also might be worth an audit or two of the $100+ million IRAs to see if the valuation used when the securities were put into them passes the smell test.

"A small number of taxpayers has accumulated larger IRA balances, likely by investing in assets unavailable to most investors—initially valued very low and offering disproportionately high potential investment returns if successful, the GAO noted."

[george76]

Quote:

Originally Posted by brewer12345 Since I don't have a $100MM IRA, I will not spend a lot of time sweating this one...

Most expats aren't tax cheats, but now they are all forced to deal with increased regulations such as FATCA and what have you. I'm afraid that type of overreach will happen here as well.

There should be an easy solution to fix it. Simply go after the people who put in non publicly traded securities in their IRA's. But I doubt that this limited type of action is what will happen...

[brewer12345]

Quote:

Originally Posted by george76 Most expats aren't tax cheats, but now they are all forced to deal with increased regulations such as FATCA and what have you. I'm afraid that type of overreach will happen here as well. There should be an easy solution to fix it. Simply go after the people who put in non publicly traded securities in their IRA's. But I doubt that this limited type of action is what will happen...

Even easier: do not allow non-publicly traded/registered securities to be put in IRAs. End of problem.

[Hermit]

I read an in-depth article on accumulating such large dollars in an IRA. It can be done by people in the finance industry and it can all be legal. If we are going to throw stones at those who take legal approaches to minimize tax dollars and/or maximize government handouts benefits, most of us on this board better duck.

[Bestwifeever]

I don't think I am a dinosaur but I can remember when IRAs first started, were refined, and later the Roth version was offered. None of these programs were written in stone. That unexpected consequences might cause at least a discussion about a little backpedaling can't be a surprise to anyone. Not a political matter imo, but a fiscal one.

[meierlde]

Actually it sounds like a simple step no non publicly traded securities are allowed in an IRA. That seems to solve the problem of valuation.
Of course I do think that since IRA's and 401ks are for an individual and their spouse, that the RMD of the original owner or spouse should be used on non spousal withdrawals. Futher that if a IRA is descending to a second non spouse from a first non spouse then a 10 year withdrawal should be imposed.

[george76]

Quote:

Originally Posted by brewer12345 Even easier: do not allow non-publicly traded/registered securities to be put in IRAs. End of problem.

I agree completely.

[Gumby]

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Originally Posted by brewer12345 Even easier: do not allow non-publicly traded/registered securities to be put in IRAs. End of problem.

Easier said than done. The people who take advantage of these things have the incentive, the money and consequently the ear of congress critters to fight any such change.

[M Paquette]

Quote:

Originally Posted by brewer12345 Even easier: do not allow non-publicly traded/registered securities to be put in IRAs. End of problem.

No precious metal bullion? No private mortgages? No real estate ("I promise not to make personal use of it, mkay?") ? No interest in a private business?

Well, there goes THAT retirement plan...

I'm fine with limiting retirement accounts to things that are trivially valued. There's a bunch of other folks that probably are not, though. There are some arguably insane get-rich-quick schemes built around some of the odder investments. (Oh, and the IRA holder ain't the one that gets rich quick.)

[brewer12345]

Quote:

Originally Posted by Gumby Easier said than done. The people who take advantage of these things have the incentive, the money and consequently the ear of congress critters to fight any such change.

Which is why now that I am no longer a regulator I mostly hunker down, ignore the media, and concentrate on where the metal (lead) meets the meat.

[pb4uski]

Quote:

Originally Posted by george76 I agree completely.

+2

[Senator]

Quote:

Originally Posted by M Paquette No precious metal bullion? No private mortgages? No real estate ("I promise not to make personal use of it, mkay?") ? No interest in a private business?

Gold, Mortgage Notes and RE are publicly traded. You cannot have someone sell you gold at ~$1 an oz, and put it in your 401K.

Of course, maybe that is the way. Form a company, buy gold. Value the company shares at .000125. But the book value of the company is $1,000+ a share due to the gold. Put the shares in the Roth.

Then, liquidate the company.

[MichaelB]

In case anyone is interested, here's a link to the GAO report webpage U.S. GAO - Individual Retirement Accounts: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction from Congress Is Needed

[harley]

Quote:

More Direction from Congress Is Needed

Well, this just became a non-issue.

[sengsational]

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Originally Posted by gauss ... Perhaps they could structure it so that large conversion/withdrawals do not elevate you to a higher tax bracket. ...

Then you woke up!

[Independent]

Quote:

Originally Posted by Hermit I read an in-depth article on accumulating such large dollars in an IRA. It can be done by people in the finance industry and it can all be legal. If we are going to throw stones at those who take legal approaches to minimize tax dollars and/or maximize government handouts benefits, most of us on this board better duck.

Suppose someone says:
"The wording of this law seems to conflict with the intent. This is demonstrated by the fact that some people are complying with the words but not the intent. Therefore, we should clean up the wording so that it matches the intent."

I wouldn't say that person is "throwing stones" at people.

[marko]

$5 million today...in a few years, they'll have $500K considered 'excessive' and a few years after that, $100K.

Or is this another "by the year 1986, social security won't be available"?

[marko]

Quote:

Originally Posted by Gumby Easier said than done. The people who take advantage of these things have the incentive, the money and consequently the ear of congress critters to fight any such change.

Thank goodness!