According to the new GAO numbers, 43 million taxpayers have IRAs of any size and 622,000 have between $1 million and $5 million in IRA accounts. But only 9,000 taxpayers have more than $5 million in their IRAs. The full GAO estimates are reproduced below. (Click on the GAO table to expand it.)
The most common way is through rollovers from employer sponsored defined contribution plans such as a 401(k)s and/or traditional defined pension plans that allow lump sum rollovers at retirement.The GAO calculated, for example, that if a worker had received the maximum combined employer-employee contribution to a defined contribution plan every year from 1980 to 2011, and invested it the S&P 500 portfolio, he would have nearly $4 million in that account by the end of 2011. By contrast, had he made the maximum allowed IRA contribution from 1975 to 2011 and invested in the same S&P fund, he would have built an IRA of only $353,379.
But mega-size IRAs come from more than just buying and holding the Vanguard 500 Index Fund. The most likely source, and the way that Romney presumably built his stash: start-up stock.
Senate Finance Committee Chairman Ron Wyden (D-OR) put it this way in his opening statement at today’s hearing:
“So how did those massive IRA accounts come to be? In many cases, they’re sweetheart stock deals that most investors would never have access to. Executives buy stocks at a special, rock-bottom price – sometimes fractions of a penny per share – and use an IRA as a tax shelter. The stocks start out dirt cheap, but just like that they turn to gold, and the IRA shoots up in value. Wise investors have every right to use all the tools available to them, and no one should begrudge them their success. But IRAs were never intended to become tax shelters for millionaires – they’re designed to help typical Americans save for retirement.”
While taxes on Romney’s traditional IRA will eventually be due when he and his heirs make required minimum withdrawals, the use of Roth IRAs for start-up stock has even more potential for limiting taxes on the rich. Contributions to a Roth are made on an after-tax basis, but all withdrawals in retirement (or by heirs) are tax free. Forbes has reported, for example, that Yelp YELP -0.1% founder 2010 Max R. Levchin held millions of shares of the social review site in his Roth IRA and that billionaire investor Peter Thiel put shares of PayPal and, it appears, early shares of Facebook, in his Roth.
Traditionally, tax breaks for retirement have enjoyed bipartisan support. But they are among the most expensive breaks in the tax code and will inevitably become a target if and when Congress pursues a tax reform aimed at lowering rates and simplifying the tax code.
source: forbes.com Janet Novack