A pair of Democrats in Congress introduced legislation that seeks to put limits on the tax breaks provided by both Roth and traditional IRAs and defined contribution retirement accounts for owners of multi-million dollar accounts.
The bill, proposed by Senator Ron Wyden, D-Oregon, and Congressman Richard Neal, D-Massachusetts, would only affect people earning more than $400,000 ($450,000 for married couples) and who have retirement account balances higher than $10 million.
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People with more than $10 million in tax-advantaged retirement accounts, including vested retirement defined contribution plan balances, they would no longer be able to add money to Roth or traditional IRAs. They also would have to withdraw 50% of any balance above $10 million each year and pay taxes on those withdrawals. For example, if a person’s balance was $15 million, they would have to withdraw $2.5 million, which would likely be taxed at the 37% marginal rate, raising $925,000 in federal taxes, and leaving person with a $1.575 million after-tax distribution.
Anyone with more than $20 million in Roth IRAs, would have to withdraw all of the excess above $20 million. Someone with a combined balance of $30 million, $40 million or $50 million in a Roth IRA, would need to withdraw $10 million, $20 million and $30 million respectively.
Since contributions to Roth IRAs are made with after-tax dollars, those withdrawals would not be taxed, since the bill does not propose any change to Roth tax treatment on withdrawals.
“Taxpayer dollars spent subsidizing huge accumulations could be redirected to improve retirement saving incentives for the majority of working families, who really need the help to achieve basic retirement security,” says Mark Iwry, a former senior adviser to the secretary of the Treasury on retirement policy, who is now a nonresident senior fellow at the Brookings Institution. “Such better targeting of saving incentives is not only more fair but more efficient–generating more actual net saving instead of encouraging the super-rich to shift existing savings from less to more tax favored accounts.”
According to Congress’ nonpartisan Joint Committee on Taxation, as cited in a release about the bill, at the end of 2024, 208 individuals together held $85.1 billion in tax-sheltered retirement accounts, an average of $409 million per person, and more than 32,000 people each had more than $10 million in their retirement accounts, with an average balance of $17 million.
Additionally, tax treatment of traditional IRAs and 401(k)-style retirement accounts cost the government about $249 billion in foregone or deferred revenue in 2025, according to the nonpartisan Joint Committee on Taxation.
Under former President Barack Obama, a proposed cap on maximum benefits in IRAs and qualified plans but did not become law. A similar provision was also once included in the Build Back Better Act during former President Joe Biden’s tenure but also did not become law.
Though the latest bill is likely to not pass in a Republican-controlled Congress, if Democrats retake control of the House or Senate in 2027, Neal likely would become chair of the House Ways and Means Committee and Wyden, as the ranking Democrat, would likely head the Senate Finance Committee, meaning they would have much more leverage to consider their proposed legislation.
Iwry, who assisted with crafting the legislation, says the proposal could be included in a future SECURE 3.0 Act or other legislative package in the next Congress.
