The following is from an email sent out by Midland Trust regarding a proposed IRA Tax Law Change | September 20, 2021
The House Ways and Means Committee in Congress has proposed changes to the laws governing individual retirement accounts (IRAs) as part of their $3.5 trillion reconciliation package. These changes, if enacted into law, would have a direct negative impact on you and your ability to save for a secure retirement.
How does the proposed legislation affect me?
The proposed legislation would prohibit 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 investments in your IRA today that would be prohibited by the proposed legislation.
The bill would also prohibit 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. By way of example, 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.
IRAs holding any of the above investments would lose all of the tax advantages previously available to the IRA.
If the proposed legislation is enacted, you will no longer be able to purchase any of the above investment types in your IRA. Furthermore, you will be required to dispose of any such investments that you currently hold in your IRA by no later than December 31, 2023, which could result in significant and previously unforeseen financial and tax consequences, including taxes and penalties associated with any assets that could not be sold and must be distributed from the IRA. This is direct taxation for all income classes; nothing like this has ever been proposed.
We have two resources focused on this affront on IRAs. Please feel free to share and follow them.
Save My Self-Directed IRA page: (we will use this page to post updates)
September 16, 2021 Article outlining the bill’s provisions
What can you do? Time is of the essence – Take Action Today!
Make your voice be heard. Contact your elected officials in the United States House of Representatives and Senate, and tell them:
- You oppose limitations on IRA investment choice (Sections 138312 and 138314 of the House reconciliation bill). These under-the-radar provisions have never been publicly vetted and will have unintended and adverse impacts on you and countless other Americans who wish to save for a secure retirement through Main Street investments.
Specifically, the 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.
- Will likely cause you significant negative financial consequences by forcing you to sell existing IRA investments at a depressed price by a publicized date certain, and may also cause significant negative tax consequences (including early distribution penalties) by forcing you to distribute from your IRA any investments that you are unable to sell.
- Negatively impacts the ability of small businesses that employ everyday Americans to obtain the funding necessary to operate and grow their business and create jobs. 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 on.
► Click here to contact your U.S. Congressional Representative.
► Click here to contact your U.S. Senators.
Sample letter for you to write to your House or Senate representative
I am a voting citizen and a constituent of yours, and I am writing to share my deep concern over recommendations by the House Ways and Means Committee, Subtitle 1, Part 3, SEC. 138312 and 138314 and 138315 as it relates to IRA accounts.
I believe this effort is a reactionary over-correction to a few high-profile IRA account holders. With the proposed changes, a whole set of individuals and business entities get caught in a web that seems to have its sights set on penalizing the ultra-rich. I am not ultra rich, and this is going to affect me directly.
I would like to know if you support this section of the proposal as it relates to changes to IRA accounts.
I am an IRA holder with an investment through my retirement account that could be eliminated by this proposal. I like to invest in opportunities that are local and familiar to me. I do not want the rules changed on me this far down the road. It limits how I can diversify, putting me at the mercy of a limited set of options for my IRA investment choices.
I also think it would be unfair to small businesses whose existence materialized because people were able to invest in them in their IRA’s.
I ask you to remove Part three of this bill but in particular sections 138312 and 138314 of the proposed bill.
Thank you for all you do, and in particular thank you for listening to those of us middle of the road, long-time investors who stand to be taken down in what looks to be an attack on the uber-rich.
I will also send you a thank you note when I receive notice that you set this proposal straight with a strikeout of the IRA section. I can be reached via [your email address].
