Crack in Logic of Crack Down  

By Gary Silverman, CFP®

In a recent article in my local paper, I found out that over 28,000 taxpayers had IRAs worth more than $5 million. Senate Finance Committee Chair Ron Wyden said, "it's long past time to crack down on mega-IRAs." He’s not the only one that thinks that. I’d like to reply.

Dear Senate Finance Committee: Let me get this right. Congress passed laws to create the Individual Retirement Account (IRA). Some folks took advantage of it and through investment prowess (or luck) they ended up with a lot of money. What exactly are we wanting to crack down on?

Maybe it’s that people put money into the IRA. Perhaps we should only allow only those who won’t have a lot of money in the future to put money into the IRA. How we’d figure that out in advance, I’m not sure. Perhaps if you can afford an IRA you shouldn’t be allowed to have one.

Maybe instead it’s that people should only invest in things that can’t grow like crazy. In that case, I’d suggest limiting IRAs only to CDs or government bonds? Come to think of it, just do the bonds. After all, y’all (in the government) need the money.

In either case, or others I could make up, it seems to me that “crackdown” isn’t the appropriate response. You crack down on behavior that is wrong. What exactly is wrong with someone making wise decisions based on the tax laws that exist?

But let’s ignore all that. What is really being called out are any tax breaks for the rich. Okay. Fine. No problem. But in that case, don’t get mad at them for doing so, get mad at yourselves for creating the laws that allow them to do so. Perhaps instead of trying to shame people for growing their IRA in perfectly legal ways, you should crack down on the congressional members who made it possible.

But let’s ignore all that as well. What are you doing to do about it now? What might be reasonable is to limit IRA contributions once they get to a certain size. I can see that (of course you’d have to include 401(k) plans as well). However, that doesn’t solve your problem, does it? If someone got their IRA to $5 million or whatever number you feel is too much, do you really think it will stop growing?

Perhaps you should force them to liquidate any amount over your deemed “too much” value. If so, you have just changed the rules mid-stream. Then again, congress is rather experienced at doing just that. Heck, while you are at it, tack a penalty on it as punishment for what the IRA holder used to think was a good thing (and that you encouraged). How dare they be happy about a big account?

I get it though. Our society is changing to where success is not looked at with appreciation. Instead, we denigrate it as the indication of gain not deserved. I guess this is just the cost of progress.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.