September 08,2016

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Wyden Proposal Would Crack Down On Tax Avoidance In Retirement Plans, Create New Opportunities For Working Americans To Save

Legislative Discussion Draft Proposes New Matching Contribution for Employees Repaying Student Loans, Fights Use of “Mega Roth IRAs” to Avoid Taxes

WASHINGTON Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today released a discussion draft of legislation titled the Retirement Improvements and Savings Enhancements (RISE) Act, which would help more working families and recent college graduates save for retirement, while cracking down on unfair strategies used by the privileged to rake in subsidies and dodge tax bills with so-called “mega Roth IRAs”.

The existing tax incentives for retirement savings – which will add up to more than $1 trillion over the next five years – represent the second-largest subsidy in the U.S. tax code, yet the majority of Americans struggle to save. According to the National Retirement Risk Index, the median IRA account contained only slightly more than $25,000 as of 2013. An estimated 60 percent of all households had nothing saved in an IRA or 401(k). Meanwhile, a recent GAO report found that between 2,000 and 5,000 taxpayers had balances in IRA accounts, including Roth IRAs, of more than $5 million in 2011. The estimated value of those taxpayer-subsidized Roth IRAs totaled between $8 billion and $13 billion. “Mega Roth IRAs” are often the result of an account holder seeding an account with specially-acquired assets that appear to be worth very little before exploding in value. The RISE Act draft released today would prohibit further contributions to a Roth IRA if its total value exceeds $5 million.

“Taxpayers are pouring dollars into incentives for retirement savings, but still far too many Americans struggle to set money aside after they cover the basics. Tax incentives for savings ought to be available to more working families and more generous to the middle class. A lot of recent college grads are buried under thousands of dollars in student loan debt, but paying down your student loans shouldn’t mean you lose out on the opportunity to save with an employer match,” Senator Wyden said. “It’s time to face the fact that our tax code needs a dose of fairness when it comes to retirement savings, and that starts with cracking down on massive Roth IRA accounts built on assets from sweetheart, inside deals. Tax incentives for retirement savings are designed to help people build a nest egg, not a golden egg.”

In addition to cracking down on “mega Roth IRAs,” the draft proposal would:

  • Allow employers to make “matching” contributions to a 401(k) retirement plan while their employees make student loan repayments. Under this proposal, recent graduates who cannot afford to save money above their student loan repayments would no longer have to forego the employer match.
  • Make the “Saver’s Credit” refundable so that it is available to Americans with no income tax liability, simplify its structure, require that the credit amount be contributed directly to a tax-favored retirement plan and increase its income cap. 
  • Eliminate Roth conversions for both IRAs and employer-sponsored plans to prevent tax gaming and close the “back door” around income limits.
  • Eliminate “stretch IRAs” to prevent taxpayer-subsidized retirement accounts from being used as estate planning tax loopholes.
  • Gradually increase the age at which retirement plan participants are required to begin taking distributions from their accounts. The “required minimum distribution” age of 70.5 years has remained unchanged since the early 1960s. In addition, the draft provides that participants who reach the required age with balances in their retirement plans of less than $150,000 will not be required to begin taking distributions.

The RISE Act discussion draft is a detailed legislative proposal, but not final. It is being circulated to stakeholders, members of Congress, federal officials and others for review and comment. The responses will be reviewed and, if appropriate, incorporated into legislation. Please submit comments on the proposal to

A one-page summary of the legislative proposal can be found here. A longer summary can be found here and legislative text can be found here. A Joint Committee on Tax technical explanation can be found here.