Property tax bill Peter Thiel to his IRA. could force the withdrawal of $5 billion from

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

Kiyoshi Ota / Bloomberg via Getty Images

Billionaire Peter Thiel and others with large balances in retirement accounts are on the legislator’s crosshairs.

House Democrats announced a tax package Monday that enforces distributions from nest eggs on individual severance accounts, 401(k) plans and other severance pay values ​​exceeding $10 million.

PayPal co-founder Thiel owns a $5 billion Roth IRA in 2019, according to a ProPublica report released in June based on tax filing data. IRAs cost less than $2,000 20 years ago.

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

A Roth IRA is a type of after-tax account. Donations are taxed in advance. Investment income is tax-free as long as the owner does not withdraw the money after age 59.

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

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

“Everything was written in response to Peter Thiel,” Slott said of the House law. “Because he fits his profile. He is in his fifties and has $5 billion.

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

Their position reflects the tax implications that new distribution rules may have on Americans with so-called “mega IRAs.”

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The House proposal is one of several changes to the tax law aimed at bringing the wealthy to spend up to $3.5 trillion on education, paid leave, childcare, medical care and climate control. The House Ways and Means Committee on Wednesday passed the tax package, preparing for voting in all rooms.

“The IRA was designed to provide post-retirement security to middle-class families and avoid tax payments to the ultra-wealthy,” said Senate Finance Committee Chairman Ron Wyden. said.

new distribution rules

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

Added to these rules is House law, which requires wealthy savers of all ages to withdraw most of their total retirement allowance each year. They will potentially have income tax on their money.

The formula is complicated depending on factors such as account size and account type (before tax or loss). The general assumptions are as follows: Account owners should withdraw 50% of accounts valued at more than $10 million. Even for larger accounts, 100% of your account size must be deducted at least $20 million.

Here’s an example of a distress amount: Individuals with a $50 million Roth account will need to withdraw $30 million the following year. A person with a $15 million pre-tax account would withdraw $2.5 million.

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

However, single taxpayers earning less than $400,000 and couples with income less than $450,000 are exempt from the rules.

“if [Thiel] really smart and can get it [adjusted gross income] Below the threshold, he will bypass this new rule altogether. “

not just peter thiel

A recent analysis by the Congressional Tax Scorekeeper, the Joint Tax Commission, increased the number of taxpayers with an IRA from $5 million to nearly 28,600 from 2011 to 2019.

According to IRS data, these account for less than a tenth of the nearly 70 million taxpayers in traditional (pre-tax) or loss IRA taxpayers.

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

“It’s not just people like Peter Thiel,” says Beth Shapiro Kaufman, a real estate planner at the law firm Caplin & Drysdale. “The period of his working life was an unprecedented period in the stock market, so I see experts who have millions of double-digit volumes.”

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

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