Editors' pick: Originally published Nov. 8.
Within hours, America and the world will know who will be the next president of the U.S.
Likewise, owners of self-directed individual retirement accounts will soon know whether their cherished financial tool of choice will be cut off at the knees by a horrible new legislative proposal that could be supported by Democratic presidential candidate Hillary Clinton.
The deceptively named Retirement Improvement and Savings Enhancement Act of 2016 was proposed by Democrat Sen. Ron Wyden of Oregon in reaction to disclosures made during the 2012 presidential race.
The Republican presidential that year, Mitt Romney, a business-restructuring expert and venture capitalist, disclosed his ownership of an IRA worth as much as $102 million. Although only he knows for sure, it is likely that he was able to achieve such an impressive balance through investing his IRA funds through a self-directed IRA, which provides the flexibility to invest in assets not listed on exchanges, such as precious metals, private companies and real estate.
Wyden thought that Romney's success was disproportionate and therefore unfair, so the senator directed taxpayer funds to pay for an IRA study from the Government Accountability Office.
Specifically, Wyden wanted to know whether an IRA could be legally grown to such a lofty size and how many Americans owned so-called mega-IRAs of $5 million or more.
The GAO study on self-directed IRAs drew two conclusions: (1) there are multiple legal ways that one could accumulate a very large balance in an IRA; and (2) there are relatively few IRAs that have achieved such huge balances, with an estimate of fewer than 8,000 IRAs meeting the definition of mega-IRA.
Despite the GAO's confirmation that one could achieve such large balances legally and that mega-IRA's constitute far less than 1/100th of 1% of all IRAs, Wyden crafted the RISE Act proposal specifically to destroy the wealth-building potential of self-directed IRAs.
This is accomplished through a provision that specifically prohibits investors from purchasing any asset at a price below the value established by a formal appraisal.