Say goodbye to self-directed IRA and tax-free Roth growth

The House Ways and Means Committee recently released proposed tax legislation intended to pay for President Biden’s $3.5 trillion infrastructure bill. Several provisions severely restrict your freedom to self-direct the investments in your IRA. Continue reading to find out how you can protect your self-directed IRA.

Regardless of which side of the political spectrum you stand or how you feel about the proposed infrastructure bill, we believe the proposed restrictions of the investment options now available to middle-class retirement savers is not a prudent or appropriate way to pay for this or any other spending bill.

Despite the stated objective of only raising taxes on corporations and the wealthy, many of the proposed changes will restrict the ability of average retirement investors to grow their nest egg, eliminate a significant funding source for start-up businesses, and stifle innovation.

Find a summary of the proposed tax provisions was released by the House Ways and Means Committee here.

While many provisions are troubling, we would like to direct your attention to those specifically pertaining to retirement plans found in Part 3 on pages 10-12, Sections 138312 and 138314.

The Direct and Immediate Impact of These Sections for Your Retirement Account

• Under these provisions, you would no longer be allowed to invest your IRA into private placements and single-member LLCs, regardless of your level of income or wealth.
• To make matters worse, these provisions require anyone currently holding these assets, which are often illiquid, to distribute or otherwise remove them from their IRA accounts within two years.
• This will result in significant tax consequences for many people, including low and middle-income investors.

Currently, the proposals are expected to advance out of the House Ways and Means Committee to be voted on by the full House of Representatives in the next 1 to 3 weeks. If it passes the House vote, the bill will proceed to the Senate with an expected vote sometime in the fall of this year.

Democratic leaders have expressed their intent to pursue this legislation through a procedural process called reconciliation, which would allow passage without bipartisan support. We point this out not in judgment of the merits of the overall bill or the strategy for advancing the legislation, but to help you understand where your voice may have the most impact.

How You Can Act Now to Object to These Critical Sections in Biden’s Proposed Bill

We strongly encourage you to contact your representatives in Congress and the Senate, regardless of party, to voice your opinion on these proposals. The impact you have on educating and swaying those members of Congress in the Democratic Party will have a significantly larger impact on the outcome of these poorly conceived policies.

With most of the discussion focused on corporate and capital gains taxes, there seems to be little understanding or discussion around the impact these particular retirement plan provisions will have on ordinary taxpayers. This is why it is critical that you take action to contact your legislators. We are optimistic that enough of our legislators would do the right thing to eliminate these provisions if we are able to educate them on its impact.

Final Thoughts from Advanta IRA about How to Protect Your Self-Directed IRA

We strongly encourage you to reach out to your Senators and Representatives to demand these provisions be removed from any proposed legislation. Here is a sample letter you may find helpful in drafting your own letter or email to your representatives in Congress and the US Senate.

In the subject line of any correspondence with them, please include “Sections 138312/138314 of $3.5T Infrastructure Bill.” Hopefully with enough references to the section number in the subject lines, it will be easier for congressional aides to track a collective rise against these proposals.

If you have any questions, please contact Advanta IRA today.

 

About Scott Maurer

Scott is an attorney and a graduate of the University of Florida Law School. Scott started his career with Advanta IRA in 2006. His experience with various investment types and their unique processes makes him an invaluable asset. Scott holds the designation of Certified IRA Services Professional (CISP) and leads engaging seminars and webinars that educate the public on the intricacies of self-directed IRAs.

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