Millionaires and Billionaires: How IRA Rules Benefit the Rich

Imagine having a retirement account worth $5 billion, which you can withdraw without paying a single dollar in federal income tax. This is the reality for billionaire investor Peter Thiel, who opened a Roth IRA account in 1999 with less than $2,000 and used it to buy into the startup that became PayPal.

Thiel’s account is not an isolated case. According to the IRS, there are over 32,000 individuals who hold more than $10 million in tax-sheltered retirement accounts. At the very top, 208 people hold $85.1 billion between them, averaging $409 million each.

So, how do these individuals accumulate such massive amounts in their retirement accounts? The answer lies in the low valuation of assets within IRAs. A 2014 Government Accountability Office report found that the IRS struggles to price private companies, making it difficult to detect undervalued assets inside IRAs.

Now, lawmakers are trying to crack down on these IRA rules that benefit the rich. Sen. Ron Wyden (D-Ore) and Rep. Richard Neal (D-Mass) have introduced a bill that targets individuals earning more than $400,000 a year ($450,000 for couples) who hold more than $10 million across their IRAs, Roth accounts, and 401(k)s. These individuals would be unable to add another dollar to their account, and each year they’d withdraw half of everything above $10 million and pay income tax on it. Any amount above $20 million would have to be fully withdrawn.

A Closer Look at the Bill

The Wyden-Neal bill aims to prevent individuals from accumulating massive wealth in their retirement accounts. According to the Joint Committee on Taxation, more than 32,000 individuals held over $10 million in tax-sheltered retirement accounts at the end of 2024, averaging $17 million. At the very top, 208 people held $85.1 billion between them, averaging $409 million each.

But how does anyone get $10 million into an account like that? Contributions can’t do it – the annual IRA limit was $2,000 when Thiel opened his, and it’s $7,500 for 2026 ($8,600 for those 50 and over). The move is to put in something worth almost nothing, then wait for it to climb.

One Economist’s Proposal: Abolish the Tax Break Entirely

Andrew Biggs, a senior fellow at the American Enterprise Institute, wants to go even further. He believes that the government should stop subsidizing retirement accounts and send the money to Social Security. Biggs argues that if he were in charge, he wouldn’t have the tax preference at all.

Biggs’ proposal is based on the idea that the retirement account tax break does little to raise how much the average person saves. High earners simply move money they were already setting aside into accounts where it grows untaxed. What works, Biggs believes, is signing people up by default – a system that Britain started in 2012, and by 2024, nine in 10 eligible workers were paying into a workplace pension.

Biggs has also been a proponent of automatic enrollment in workplace retirement plans. He notes that if a big concern people have is that not enough Americans either offer a retirement plan or participate, something like the U.K. structure is how you do it.

Who the Current Tax Break Actually Helps

Around half of American households – 54.3% – had any retirement account at all in 2022, according to a Congressional Research Service analysis of Federal Reserve data. Among those nearing retirement with a 401(k), median combined 401(k) and IRA balances reached $204,000, according to the Center for Retirement Research at Boston College. Those gains went mostly to higher earners.

If you’re one of the roughly half of households with no retirement account at all, this tax break has never touched you. And if you do have one, the deduction on your contributions is the same one Biggs wants to end – by his math, it was never doing much for you anyway.

A Law Professor’s Take: The System is ‘Just Backward’

Norman Stein, professor emeritus at Drexel University’s Thomas R. Kline School of Law, believes that the system is ‘just backward.’ Stein argues that the current tax break is not benefiting the average person, but rather the wealthy.

Stein’s comments echo the sentiments of Biggs, who believes that the government should stop subsidizing retirement accounts and send the money to Social Security. Both Biggs and Stein agree that the current tax break is not doing enough to help the average person save for retirement.