Roth IRAs are investment savings plans funded with after-tax money, with all investment gains and withdrawals (after the saver reaches 59.5 years of age) being tax-free. tax code-by wealthy Americans to avoid taxation and pass on appreciated assets to their heirs tax-free. How do we know this? Thanks to a recent leak of tax records and subsequent reporting by ProPublica, we now know, for example, that the co-founder of PayPal Holdings Inc., Peter Thiel, has a Roth IRA worth roughly $5 billion. And, as American University Kogod School of Business professor Caroline Bruckner explained at the NIRS panel, women and gig workers are also likely to have low savings and reduced access to plans, though more and better data are still needed.įor those who do have access, the accounts are increasingly being used as mini hedge funds and tools for intergenerational transfers-one of many rich-friendly carve-outs in the U.S. It is also important to note that the figures above only capture those roughly 60 percent of Americans who have any retirement savings accounts at all-a divergence that itself breaks down along income and racial lines. This racial divide is the result of systemic discrimination, reflecting decades of policies and practices that denied Black, Latino, and Indigenous Americans access to the best neighborhoods and highest-paying occupations. Mean balances for defined contribution retirement accounts, by race and ethnicity, 1989–2019 Mean balances for defined contribution retirement accounts, by percentile of net worth, 1989–2019įigure 2 White Americans accumulate more retirement assets, and receive larger corresponding tax benefits, than Black or Hispanic savers Tyler Bond, the research manager at the National Institute of Retirement Security, shared Figures 1 and 2 below-courtesy of Tax Policy Center Senior Fellow Steven Rosenthal-to make this point at the NIRS conference.įigure 1 The richest Americans accumulate the largest retirement account balances and corresponding tax benefits Yet most of these incentives today disproportionately benefit high-income, White Americans. The history of tax preferences for retirement savings, also known as retirement tax expenditures, is long and complex, but the stated desire for these policies has always been to help middle class taxpayers save for retirement. The rise of mega retirement accounts for the wealthy The brief then concludes with a set of promising policy remedies to help ensure these tax incentives are used by those who need them to save for retirement, not so the wealthy can avoid paying their fair share of taxes when our nation’s needs are high and rising. This issue brief, which was the subject of a panel at the National Institute of Retirement Security’s annual conference earlier this month, presents the evidence for how the growing misuse of the federal tax code by wealthy Americans was engineered and why it matters to average retirement savers and our overall economic health and wellbeing. Retirement tax incentives supercharge the fortunes of wealthy Americans Download In this sudden new era of rising violent authoritarianism abroad and challenges to our own democracy here at home, policymakers need to end these federal tax incentives for the wealthy to demonstrate that the most well-off in our society cannot capture our federal tax system to the detriment of those for whom these retirement savings plans were originally designed. This subversion of retirement tax policy starves the federal government of the resources it needs to make critical investments in physical and social infrastructure that could deliver strong, stable, and broad-based economic growth. Today, wealthy Americans use tax-advantaged retirement accounts to invest huge sums tax free for themselves and their heirs. But as a result of taxpayer abuse and policymaker missteps over decades, tax-advantaged retirement accounts have been hijacked by the rich and their armies of lawyers and accountants. The conventional wisdom is that the nation’s system of retirement tax incentives, built around 401(k)s and Individual Retirement Accounts, is geared at helping the middle class build a small nest egg for their golden years-just enough to supplement Social Security and sustain a modest standard of living after a lifetime of hard work.
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