Coase-Sandor Working Paper Series in Law and Economics

Mega-IRAs, Mega-401(k)s, and Other Mega-Retirement Accounts: Statement for the Record

Daniel Hemel
Stephen Rosenthal


The Senate Finance Committee’s hearing on July 28, 2021 -- "Building on Bipartisan Retirement Legislation: How Can Congress Help?" -- spotlighted “mega-IRAs”: individual retirement accounts with balances of $5 million or more. An analysis by the Joint Committee on Taxation in advance of the July 28 hearing found that the number of taxpayers with mega-IRAs now exceeds 28,000. The hearing followed a June 2021 report by the nonprofit investigative journalism organization ProPublica, which revealed—based on leaked IRS files—that a handful of high-net-worth individuals had accumulated massive IRA balances. The Senate Finance Committee hearing and the ProPublica report emphasized one way that taxpayers amass mega-IRAs: by “stuffing” an account with undervalued assets such as pre-IPO stock and investment-fund carried interests. “Stuffing” no doubt occurs in some instances, and Congress could take steps to stop it (e.g., by prohibiting IRAs from holding non-publicly traded assets). However, it is unlikely that most mega-IRAs result from abusive stuffing tactics. Individuals engaged in stuffing would generally want to convert their IRAs from traditional to Roth accounts quickly. Yet JCT’s analysis found that 85 percent of mega-IRA owners hold only traditional accounts. How, then, have tens of thousands of high-income individuals created mega-IRAs? As our submission shows, existing rules allow high-income taxpayers to amass mega-IRAs straightforwardly—and legally—by “maxing out” 401(k) defined contribution plans, potentially combining defined contribution plans with defined benefit plans, and investing in S&P 500 index funds or other publicly traded assets. Mega-IRAs are indeed a problem, but they are a problem primarily caused by laws that lavish excessive tax benefits on high-income individuals. This statement for the record begins by illustrating how high-income individuals can create mega-IRAs through entirely legal means. Next, we review the choices that Congress has made over the last quarter-century that opened a wide door to mega-IRAs. We then explain why the JCT data and other sources strongly suggest that most mega-IRAs do not reflect stuffing. We conclude with concrete policy recommendations to stem the tide of mega-IRAs and other mega-retirement arrangements, which undermine the progressivity and revenue-raising potential of the federal income tax system.