Abstract
This paper addresses foreclosing the use of IRAs to accumulate extraordinary fortunes by suggesting approaches to improving the equity of the distribution of tax preferences for pensions that would limit the size of tax-preferenced retirement savings accumulations. It would make individual retirement accounts and employer-sponsored tax-preferenced retirement accounts conform to the generally-held understanding of their purpose, which is to be a tax-preferenced source of reasonable levels of retirement income rather than a tax shelter for extraordinary wealth accumulation. Although we suggest several approaches, our preferred approach is to set a cap on the maximum amount an individual could hold in tax-preferenced defined contribution plans and IRAs. Individuals would be required to take distributions when their account exceeds the cap. We suggest that such a cap be set at $5 million, indexed for inflation. The choice of that limit is not, as we explain, arbitrary, but the exact dollar amount of the limit is not, in any event, crucial to the proposal. We also suggest alternative proposals, including limiting (with certain exceptions) investments in tax-preferred retirement accounts to publicly-traded investment products.
This paper includes three sections: first, a discussion of the problem (including how retirement accumulations can grow to the extraordinary levels attained by Mr. Romney); second, a description of our preferred proposal and a discussion of issues related to that proposal; and third, a discussion of some variations and alternatives to the proposal.
Recommended Citation
Norman P. Stein and John A. Turner,
Equity in the Distribution of Tax Preferences for Pensions: Capping the Amount Allowable in Tax-Preferenced Retirement Plans,
15 Fla. Tax Rev.
(2014).
Available at: https://scholarship.law.ufl.edu/ftr/vol15/iss1/3