Proposed Tax Legislation May Be Bad For Your IRA

As part of the $3.5 trillion reconciliation package, the U.S. Congress is currently considering a spending bill that covers a multitude of issues. Last week, the details of the proposed legislation were made public.

The language found within the tax section on the proposed changes laws governing individual retirement accounts (IRAs) is concerning. These changes, if enacted into law, would have a direct and negative impact on individuals’ ability to diversify their investment options within an IRA.

The proposed legislation changes include:

– Prohibiting IRAs from holding privately placed equity and debt securities and other investments that require the IRA owner to meet certain minimum financial, educational, or licensing requirements. For example, the legislation would prohibit IRAs from holding unregistered investments that are offered to accredited investors, like equity or debt investments in small businesses or investments in private funds. You may very well hold these types of investments in your IRA today that would be prohibited by the proposed legislation.

– Prohibiting IRA owners from investing in (1) non-publicly traded entities in which the IRA owner and related entities (including the IRA itself) own more than a 10% interest or (2) any entity in which the IRA owner is an officer or director, regardless of ownership percentage. For instance, single-member limited liability companies or any investment in an entity in which an individual is a director or officer could no longer be held in an IRA.

If the proposed legislation is enacted, investors will be forced to divest their IRA accounts holding private securities and take distributions of 100% of those investments before they are eligible for withdrawal, effectively leading to massive out-of-pocket tax penalties.

What can you do?

Make your voice heard. Your representatives in the House and Senate need to hear from you about why these proposed changes will be harmful to you as an IRA investor. Contact your elected officials in the United States House of Representatives and Senate, and tell them:

– You oppose limitations on IRA investment choices (Sections 138312 and 138314 of the House reconciliation bill). These under-the-radar provisions have never been publicly vetted and will have an unintended and adverse impact on countless Americans who wish to save for a secure retirement through Main Street investments. 

– This legislation negatively impacts your ability to save for a secure retirement by limiting your choice and ability to diversify your retirement savings outside of the stock market. 

– This legislation will likely cause you significant negative financial consequences. You will be forced to sell your existing IRA investments at a depressed price by a publicized date which could also cause significant negative tax consequences (including early distribution penalties). Additionally, you could be forced to distribute any investments from your IRA that you are unable to sell.

– This legislation negatively impacts the ability of small businesses to obtain the funding necessary to operate and grow their business. These small businesses create jobs and employ everyday Americans. The proposed legislation eliminates the ability of suitable investors to participate in private capital-raising transactions through their IRAs, a source of funding on which many of these small businesses rely.



Contact your Senators and U.S. Congressional Representatives.

CLICK HERE to find out how you can contact them along with sample messaging.

DISCLAIMER: Vantage Retirement Plans, LLC will continue to advocate on behalf of the individual investor choice. If you have any questions about Sections 138312 and 138314 of the House reconciliations bill and how it will impact you, please contact your financial or tax advisor.
Vantage Retirement Plans, LLC does not offer investment, tax, financial, or legal advice, nor do we endorse any products, investments, or companies that offer such advice and/or investments. All parties are strongly encouraged to perform their own due diligence and consult with the appropriate professional(s) licensed in that area before entering into any type of investment.