Currently, no limits exist to the amount a U.S. taxpayer can accumulate in an individual retirement account. A recent report from the Government Accountability Office found that roughly 9,000 individuals have more than $5 million saved in IRAs. The value of a 314 accounts tops $25 million. However, the vast majority of IRAs contain less than $1 million.
At a hearing earlier this month, Senate Finance Committee Chairman Ron Wyden expressed concerns that “the IRA was never intended to be a tax shelter for millionaires.”
The GAO included a typical example. If you made maximum contributions from 1975 to 2011 investing in a Standard & Poor’s 500 Index, the value of the account would be about $350,000. In 2014, the maximum contribution is $5,500. Those over the age of 50 may contribute an extra $1,000 to catch up on retirement savings.
Amounts would be higher in cases of a 401(k) rollover or for anyone who is self-employed and receives a higher IRA contribution limit.
President Barack Obama had proposed limits on IRAs and 401(k)-type plans back in 2013. His plan called for a cap of $3.2 million on combined account balances. The proposed plan has not advanced in Congress.
The GAO report that was prepared to go along with the Finance panel’s retirement policy hearing did not make any recommendations. Another report expected later this year may go further.
Following Tax Court litigation, a rule change effective January 1, 2015 will limit the number of IRA rollovers to one in a 12-month period. However, trustee-to-trustee transfers between IRAs are not subject to the same limit. You can also still make as many rollovers from traditional IRAs to Roth IRAs as you want, but consult with a tax attorney on tax issues and discuss whether this strategy fits with an estate plan.
Source: Bloomberg, “Romney-Sized IRAs Scrutinized as Government Studies Taxes,” Richard Rubin, Sept. 16, 2014