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IRA Financial Blog

Roth IRA Cap is Coming – Episode 302

Adam Talks

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. revisits the Roth IRA cap, which could become a reality, as Senator Ron Wyden is expected to propose a $5 million cap, among other changes to the Roth.

In a recent podcast, Adam talked about the Roth IRA cap and why it may be on the horizon. In this episode, he discusses new details that have emerged about the proposed cap. Is a possible Roth IRA cap a done deal? Not yet, but it is getting closer to reality. The government is very considered about high income earners sheltering tens of millions of dollars in the tax-advantaged plan. What else is in store for American retirement savers? Read on and listen to Adam Talks.

Why a Roth IRA Cap?

If you don’t know, Senator Wyden has already once introduced a Roth IRA cap about five years ago. You probably didn’t hear about it because it got shot down. However, a recent story about PayPal co-founder Peter Thiel has made headlines. The ProPublica article states that Thiel has amassed more than $5 billion in a Roth IRA. Essentially, he bought stock in PayPal for less than a cent each before it went public. He bought those stocks with a Roth IRA and once the company went public, they were worth over $25 million.

From there, he used that money to invest in other projects to see huge, tax-free windfalls. Since the assets are held in a Roth, the IRS can’t touch it, so long as Mr. Thiel waits until he’s 59 1/2 to start distributing funds from the plan. However, it will be subject to estate tax upon his death.

Senator Wyden, and others, say that the Roth was not introduced so the über rich could shelter their gains from taxes. They want to cap the Roth at $5 million. This is a game changer for many savers and Mr. Bergman is here to voice his disapproval!

Read More: Can a Roth IRA be Self-Directed?

Why There Should NOT be a Cap

Based on information from 2019, there were 497 Americans with an IRA balance of over $25 million. Further, there are roughly 28,000 with over $5 million. Of those, almost 3,000 held those funds in a Roth IRA. The total funds is estimated at around $40 billion.

Senator Wyden’s proposal takes aim at a fraction of those utilizing the Roth to save for retirement. Most savers will never amass such a fortune. However, with enough know-how and some good investment decisions, it’s not unheard of to see millions in your retirement account. Why would anyone want to deter Americans for saving for retirement?

Plus, those Roth accounts will be subject to estate tax, so the Treasury will still get a cut in the future. This cap may lead to more people investing in life insurance – which may be exempt from estate tax. It’s a lose-lose for the government really. And, there is no cap on life insurance, so a family’s legacy can still live on, without tax.

It’s important to note that the Roth IRA is not just for the rich. Yes, they take full advantage of the tax-free gains of the plan. But, anyone with income can contribute to and invest with a Roth. The only difference is the lack of education surrounding the plan.

Some Things to Chew On

Let’s look at some quick numbers on how one can amass over $5 million in an IRA. If you start at age 21 and contribute $5,000 annually until age 72, you’d have over $7 million with a 10% rate of return. Someone who waits until 25 and contributes $5,500 per year, will see over $5.2 million. Is that abusive? Should they be penalized for saving for their future? No!

An IRA is some Americans’ only way to save for retirement. Why put a cap on it? There is no cap on life insurance, 529 plans, annuities, etc. If one took $500,000 he or she amassed in a Roth IRA and invested it in a start-up that goes public in a decade and now that investment is worth $8 million – should they be penalized? No! Why punish retirement investors for making smart decisions and becoming successful with them? We shouldn’t!


People will start losing faith in retirement system. If the government can change the rules on a dime (like a Roth IRA cap), who is to say they can’t make other changes? Will Roth IRAs become taxable? Will they force us to buy treasuries? People will just find other ways to save…or not save at all!

It’s up to us, as American retirement investors, to voice our opinion. Be sure to contact your elected officials to voice your displeasure if you believe a Roth IRA cap is bad for this country. It goes without saying that Mr. Bergman’s opinion is his own. Your opinion may be different, and we’d love to hear from you. Check us out on YouTube or search for IRA Financial on social media and drop us a comment!

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