Page 31 - Investment Advisor - December 2021

probably have COLAs but [they] might be smaller than we later become PayPal. That account now is worth more than $5
would otherwise expect.” billion — with no tax bill awaiting Thiel upon withdrawal of the
assets, as long as he waits until six months before his 60th birthday.
In June, ProPublica, an investigative news outlet, reported
The September release of the Social Security Trustees report — this story in an article, “Lord of the Roths: How Tech Mogul
long in coming as it is typically released in April — had potential Peter Thiel Turned a Retirement Account for the Middle Class
bad news: The projected date that the Old-Age and Survivors Into a $5 Billion Tax-Free Piggy Bank.” The article sparked
Insurance Trust Fund, which pays benefits to retirees, was to debate over Thiel’s use of a Roth IRA as a massive tax shelter —
be depleted by 2033, one year earlier than reported in 2020. and how other investors and the government might respond.
The Disability Insurance Trust Fund will pay benefits until Indeed, the expose ignited an array of actions from Congress,
2057, eight years earlier than last year’s report. Once the funds which has included an ongoing threat to the usage of the so-
are depleted, the OASI should be able to pay 76% of scheduled called mega backdoor Roth IRAs in various legislation.
benefits, while the DI will pay 91% of scheduled benefits. The retirement planning provisions that were approved in the
But this is better than some retirement experts feared at the House Ways and Means Committee’s Build Back Better bill in
height of the pandemic. mid-September were excluded from President Joe Biden’s Build
“The news from the new report was definitely less dire Back Better framework, released on Oct. 29. However, the elimi-
than many thought could be nation of backdoor Roth IRA conversions made it back into the
possible,” Wade Pfau, pro- latest version of House Democrats’ tax and spending bill, which
fessor of retirement income was released on Nov. 3.
at The American College In mid-November, House lawmakers were drawing close to
of Financial Services, told a vote on Biden’s Build Back Better bill. But Greg Valliere, chief
Investment Advisor. ”Last U.S. policy strategist for AGF Investments, said that the “growing
year’s report projected that public anxiety over inflation will become an obstacle for propo-
the combined OASDI funds nents of more federal spending.”
could be depleted by 2035. Senate Finance Committee Chair Ron Wyden, D-Ore., said in
During the pandemic, there late July, however, that data released by the Joint Committee on
was analysis circulated that this date could be moved to as early Taxation showed “it’s long past time to crack down on mega-IRAs.”
as 2029. In the end, it’s only one year sooner at 2034.” The new JCT data provided an update to a 2014 Government
The depletion date isn’t written in stone. But Congress will Accountability Office report requested by Wyden. The GAO
have to take action. report, which used 2011
“[Last year] saw a reduction in payroll taxes collected, but also an tax data, showed nearly
increase in expected mortality among Social Security recipients,” 8,000 taxpayers had
Michael Finke, professor and Frank M. Engle Chair of Economic aggregate IRA balances of
Security Research at The American College of Financial Services, $5 million to $10 million.
told Investment Advisor. “Neither had a big impact on solvency A total of more than 9,000
projections, since they largely canceled each other out, and you see taxpayers had $5 million
that the modest projected reduction in the actuarial balance is the or more.
result of using different and more accurate methodology. “The new JCT data
“The bottom line is that we’ve known for years that either show a threefold increase
taxes collected will need to rise, benefits will need to be in aggregate IRA balances of $5 million or more,” the law-
reduced, or inflation adjustments will need to be more mod- maker said.
est. It’s more than likely that politicians will wait as long as As of the 2019 tax year, nearly 25,000 taxpayers had aggre-
possible before making the hard choices, but the alternative of gate IRA balances of $5 million to $10 million. In total, more
a 24% benefit cut is a political death sentence.”
than 28,600 taxpayers had more than $5 million, including 497
Thiel: Kiyoshi Ota/Bloomberg Carson Group, said in a tweet: “I’m happy SS report was better the JCT found. The average aggregate account balance for
taxpayers with aggregate IRA balances of $25 million or more,
Jamie Hopkins, managing partner of wealth solutions at
these 497 taxpayers was more than $150 million.
than expected but I wonder if the full impact is still a year away.”
“It is shocking, but not surprising, to see how the use of mega-
IRA accounts by mega-millionaires and billionaires has exploded,”
Wyden said at that time. “IRAs were designed to provide retire-
In 1999, budding investor Peter Thiel used $1,700 in his new Roth
IRA to buy startup shares of the firm he co-founded, which would
ment security to middle-class families, not allow the super wealthy

DECEMBER 2021 INVESTMENT ADVISOR 29