IRS is looking at your largeish IRA

[mickeyd]

As I have long expected, the feds are getting itchy about all of that money that you have stashed in your IRA.

In 2014, the federal government will forgo an estimated $17.45 billion in tax revenue from IRAs, which Congress created to ensure equitable tax treatment for those not covered by employer-sponsored retirement plans. Congress limited annual contributions to IRAs to prevent the tax-favored accumulation of unduly large balances, the GAO noted. But concerns have been raised about whether the tax incentives encourage new or additional saving. Congress is re-examining retirement tax incentives as part of tax reform. The GAO was asked to measure IRA balances and assess IRS enforcement of IRA laws.

http://www.financial-planning.com/n...T=financialplanning:e3371342:47538a:&st=email

 

[braumeister]

So that's around 1% of total tax revenue, right? Not enough to justify any major changes, I think.

 

[mickeyd]

1% of the federal revenue is probably a lot of money. Just sayin...

 

[brewer12345]

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

 

[Taxman59]

The problem isn't tIRAs, but Roth IRAs. The taxable accounts will defer the tax for many years, but will eventually convert long term capital gains into ordinary income. The mega IRAs will have mega RMDs which will be taxed at high rates. The Roth IRAs however are the "problem" as the long term capital gains are converted into tax free income!

Congress and therefore the IRS, look at shorter term revenue affects of their actions. In theory, the IRA will generate net revenues as the capital gains are turned into ordinary income. The problem is that the conversion is deferred too far into the future to get included in the CBO scoring of tax bills. Roth IRAs were a net revenue gain when passed since the tax was collected up front. Now that Congress has spent that money, they want to collect on the back end as well.

We are all to blame as w keep electing these people!


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[mickeyd]

We are all to blame as w keep electing these people!

We the people are all learning how powerful a pen and a phone can be.

 

[Taxman59]

Did we just cross into politics?


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[2017ish]

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

The problem is that they won't stop there. See the AMT....

The proposal previously floated by the administration would have foreclosed DW from contributing to 401k--and she also is a couple of orders of magnitude from 100MM.

 

[Fermion]

They might limit the mega backdoor Roth IRA thing some of us are now doing (shoveling $25,000 to $30,000 into a Roth tax free every year) but I doubt they would ever change the way the Roth works on distribution (tax free).

I am a bit sad we will ER before really getting long term use of the mega Roth. It would have been nice to have a few million in a Roth when you hit official retirement age.

 

[gauss]

Other than ferreting out illegal transactions, is the concern that high balance IRA holders may have future contributions limited or that there may be some type of excise tax on existing balances?

-gauss

 

[HFWR]

I am a bit sad we will ER before really getting long term use of the mega Roth. It would have been nice to have a few million in a Roth when you hit official retirement age.

Would be nice to have a few million in ANY account...

 

[Animorph]

Hey, maybe we'll get lump sum deals from the feds to get our money out of the IRA's. Just like all the annuity buyouts being offered. Take it all out now and save 10% of the taxes or something.

 

[gauss]

Hey, maybe we'll get lump sum deals from the feds to get our money out of the IRA's. Just like all the annuity buyouts being offered. Take it all out now and save 10% of the taxes or something.

+1 I like a sale.

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

-gauss

 

[2B]

This isn't intended to be a political comment. I'm intending to provide some historical insight on what our wonderful elected leaders have done/could do to raise money.

During the Depression there was a very high "retained earnings tax" that crippled small businesses and depressed their ability to accumulate capital for investment.

When SS was implemented, it hit people and companies with several years of contributions before anyone was eligible for any benefits (it was always a pay as you go system).

Tax rates were routinely increased at all levels. I can't remember where it topped out before WWII but I think it was 85%. It got higher during WWII. There were calls to tax income at 100% above $25,000/yr. Collecting SS out of people's paychecks was so good for the government they decided to "help" people plan for paying their taxes by including withholding for income taxes.

The proposed Obama budget includes speedup withdrawls from inherited IRAs and Roth IRAs. The goal is increased and earlier tax revenue. I have no comments about whether this is good or bad and I don't wish to hear yours.

I don't want this to be taken as anything other than there is no bounds to the desire of any beauracracy to increase the intake of tax revenue.

 

[target2019]

We the people are all learning how powerful a pen and a phone can be.

My feeling is that the phone and the pen are worthless. The GAO is encouraging the IRS to do something. If I write to congressman Bob or senator Sam they won't dare cross either or those entities. The outcome will be that the IRS aims at the guy with the mega millions, but will end up costing me more in taxes.

 

[2B]

My feeling is that the phone and the pen are worthless. The GAO is encouraging the IRS to do something. If I write to congressman Bob or senator Sam they won't dare cross either or those entities. The outcome will be that the IRS aims at the guy with the mega millions, but will end up costing me more in taxes.

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?

 

[Fermion]

There is always money in the banana stand.

 

[Lakewood90712]

Did we just cross into politics?


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Yes , however , I don't think you can separate the two from this discussion

 

[Independent]

For those interested in the GAO report

U.S. GAO - Individual Retirement Accounts: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More Direction from Congress Is Needed

http://gao.gov/assets/670/666595.pdf

 

[Chuckanut]

Shouldn't the subject be "Congress is looking at your largeish IRA"??

Why blame the dummy, when the ventriloquist is in control?

 

[Independent]

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]

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]

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]

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.