Take Action! Congressional Proposals to Change IRA Investment Rules Would Limit Choice & Hurt Small Businesses.

Retirement savers know that two of the pillars of a successful retirement plan are being disciplined enough to stick to your long-term investment strategy and being willing to embrace diversification. In fact, the legendary investor Benjamin Graham once described diversification as a “tenet of conservative investment.”

That’s why the proposed changes to the laws governing what can be held within an individual retirement account (IRA) are perplexing. Not only would they upend the well-established investment strategies of many everyday American retirement investors, but they would also reduce Americans’ ability to diversify within tax-advantaged retirement accounts.

As part of the proposed $3.5 trillion reconciliation package, the House of Representatives is currently discussing several IRA proposals. Of particular concern are efforts to prohibit what retirement savers can invest in within their IRAs, as these proposals go to the heart of what makes IRAs an effective and popular vehicle for retirement savings: the ability for Americans to decide for themselves what the best investment choices are for their specific circumstances.  

Limiting Investment Choices with Significant Impacts on Retirement Savers

The proposed legislation would prohibit the use of IRAs to invest in privately-placed equity and debt securities and other investments that require IRA owners to meet minimum financial, educational or licensing requirements.

For example, the legislation would prohibit IRAs from holding unregistered investments that are offered to “accredited investors” including equity or debt investments in small businesses or investments in private funds. The SEC has made significant efforts in recent years to make private placements more accessible to everyday Americans and to drive investment in Main Street. This proposed legislation does the opposite. 

The proposals 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.

If the proposed legislation is enacted, not only will retirement savers be restricted from future purchase of any of the above investment types in their IRAs, but they will also be required to dispose of any such investments that they currently hold in their IRAs by no later than December 31, 2023. This could have several negative effects. For starters, this could result in significant and previously unforeseen financial and tax consequences, including taxes and penalties associated with any assets that could not be sold or liquidated and must be distributed in-kind from the IRA. Beyond that, it could negatively impact the market for these types of investments and could cause significant disruptions to an investor’s long-term plans.

Hurting Small Businesses and American Workers

Main Street savers have long used their IRAs to invest in small businesses, providing a stable and key source of funding for the engine of American job creation. If this important source of capital is cut off because of this legislation, an unintended consequence could be hurting small businesses’ ability to obtain the funding necessary to operate, grow and create jobs for everyday Americans.

What should you do?

If you have any questions about Sections 138312 and 138314 of the House reconciliation bill — and how it will impact you — please contact your financial or tax advisor. Also, learn more about why this legislation is such a threat to Americans’ retirement security. We want you to feel secure in knowing that our company will fight for your financial freedom and retirement security, no matter the outcome of the proposed legislation.

On a policy level, this is a time to act immediately. Make your voice heard immediately. 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.

• You are also concerned that the legislation negatively impacts the ability of small businesses that employ everyday Americans to obtain the funding necessary to operate and grow their companies and create jobs.
• You believe the legislation will ultimately increase the wealth gap (which is in direct opposition to the stated goals of the legislation) because it would limit the ability of many Americans, whose investable funds are almost exclusively in their retirement accounts, to invest in these private investments.

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