As you may be aware, the United States House of Representatives has proposed changes to the laws governing individual retirement accounts (IRAs) as part of its $3.5 trillion reconciliation package. These changes, if enacted into law, would have a direct negative impact on the ability of investment sponsors to offer a full array of investments to retirement savers; on advisors to help their clients invest effectively; and on Americans’ ability to save for a secure retirement through an IRA.
How would the proposed legislation affect investment choices?
The proposed legislation would prohibit IRAs from holding 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, like equity or debt investments in small businesses or investments in private funds. Many retirement investors hold these types of investments in an IRA today. Such investments would be prohibited if the proposed legislation is enacted.
The bill would also prohibit IRA owners from investing in non-publicly traded entities in which the IRA owner and related entities (including the IRA itself) own more than a 10% interest or 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 the tax advantages previously available to the IRA.
What if legislation is enacted?
If the proposed legislation is enacted, investors will no longer be able to purchase any of the above investment types in their IRAs. Further, they will be required to dispose of any such investments that are currently held in an IRA by no later than December 31, 2023, which could result in significant and previously unforeseen financial and tax consequences, including taxes and penalties.
We’re advocating for investor choice
We are working closely with our third-party advisors in Washington D.C., along with other major industry participants, with the goal of having these provisions removed from the reconciliation package. Know that, as always, we will continue to be a strong advocate for investor choice.
What can you do? Time is of the essence – Take Action Today.
Contact your elected officials in the United States House of Representatives and Senate and make your voice heard.