Property tax bill could force Peter Thiel to withdraw $ 5 billion from his IRA


At a press conference in Tokyo on November 18, 2019, PayPal co-founder and chairman of Palantir Technologies, Peter Thiel de Billionaire.

Kiyoshi Ota / Bloomberg via Getty Images

Billionaire Peter Thiel and others with huge retirement account balances are in the sights of lawmakers.

House Democrats on Monday announced a tax package that enforces distribution from nesting eggs when personal departure accounts, 401 (k) plans and other severance pay values ​​exceed $ 10 million.

PayPal co-founder Thiel owns $ 5 billion in Roth IRAs in 2019, according to a ProPublica report released in June on the Tax Database. The IRA was worth less than $ 2,000 20 years ago.

According to tax experts, House law requires Thiel to withdraw everything but $ 20 million and nearly empties his account.

Roth IRAs are a type of after-tax account. Donations are taxed in advance. Investment income is tax exempt unless the owner withdraws funds after the age of 59 and a half.

According to Ed Slott, an accountant and IRA expert based in Rockville Center, New York, Thiel, 53, will have to pay taxes on the growth of investments, based on the current wording of the bill.

(In this example, we assume that the IRA is his only retirement account, and the account value is still $ 5 billion.)

“It was all written in response to Peter Thiel,” Slott said of the Law of the House. “Because it matches his profile. He’s in his fifties and has $ 5 billion.

Thiel did not immediately return a request for comment from CNBC.

His situation shows the tax implications that the new distribution rules could have on Americans with the so-called “mega IRA”.

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The House’s proposal is one of many changes to tax legislation aimed at getting the rich to spend up to $ 3.5 trillion on education, paid vacations, child care, medical care and air conditioning. The House Ways and Means Committee passed the tax package on Wednesday, preparing for a vote in all chambers.

“The IRA was designed to provide post-retirement security to middle-class families and prevent the ultra-rich from avoiding tax payments,” said Ron Wyden, chairman of the Senate finance committee. Noted.

New distribution rules

Current law requires withdrawals from certain retirement accounts based on age. The 2019 law also created distribution rules for inherited IRA and 401 (k) plans.

Domestic legislation has been added to these rules, requiring wealthy savers of all ages to withdraw the bulk of their total retirement allowance each year. They will potentially have an income tax on their funds.

The formula is complex depending on factors such as account size and type of account (before tax or loss). The general assumptions are as follows: Account holders must withdraw 50% of accounts with a value greater than $ 10 million. Even for large accounts, 100% of your account size should be deducted by at least $ 20 million.

Here’s an example of an amount at risk: Individuals with a $ 50 million Roth account will need to withdraw $ 30 million next year. An individual with a pre-tax account of $ 15 million will withdraw $ 2.5 million.

According to Robert Kiebler, accountant and real estate planner based in Green Bay, Wisconsin, “It’s a big change, for example, for anyone with an IRA of $ 6 million or more than $ 7 million. $ 10 million. that’s all.”

However, single taxpayers with incomes below $ 400,000 and couples with incomes below $ 450,000 are exempt from the rules.

“Yes [Thiel] Really smart and can have it [adjusted gross income] Below the threshold, it will completely bypass this new rule. “

Not just Peter Thiel

A recent analysis by Congressional tax pointer, the Joint Tax Commission, tripled the number of taxpayers with IRAs from more than $ 5 million from 2011 to 2019 to about 28,600.

According to IRS statistics, these represent less than a tenth of the roughly 70 million traditional (pre-tax) or loss-making IRA taxpayers.

But it’s not just the ultra-rich who have millions of dollars in their accounts, especially after the stock market bull market emerged from the Great Recession.

“It’s not just people like Peter Thiel,” says Beth Shapiro Kaufman, property planner at the law firm Caplin & Drysdale. “Their working life has been a phenomenal time in the stock market, so I see experts who have millions in double-digit amounts.”

But most people should be able to live comfortably on $ 10 million in retirement savings, she added.

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