Posted on 09/21/2021 11:33:55 AM PDT by SeekAndFind
New tax laws by Democrats are on deck and in the books. And if you have an IRA or will inherit one, these changes may impact you in a huge way.
The Responsibly Funding Our Priorities Act as proposed by the Democrats Ways and Means Committee in the House will kill private placements in IRAs.
Section 138312
Sec. 138312. Prohibition of IRA Investments Conditioned on Account Holder’s Status. The bill prohibits an IRA from holding any security if the issuer of the security requires the IRA owner to have certain minimum level of assets or income, or have completed a minimum level of education or obtained a specific license or credential.
For example, the legislation prohibits IRAs from holding investments which are offered to accredited investors because those investments are securities that have not been registered under federal securities laws. IRAs holding such investments would lose their IRA status.
This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments.
Not only will you no longer be able to buy such investments, as worded you will have to sell those you already own within two years.
Section 138313
Sec. 138313. Statute of Limitations with Respect to IRA Noncompliance. The bill expands the statute of limitations for IRA noncompliance related to valuation-related misreporting and prohibited transactions from 3 years to 6 years to help IRS pursue these violations that may have originated outside the current statute’s 3-year window. This provision applies to taxes to which the current 3-year period ends after December 31, 2021.
Section 138314
Sec. 138314. Prohibition of Investment of IRA Assets in Entities in Which the Owner Has a Substantial Interest. To prevent self-dealing, under current law prohibited transaction rules, an IRA owner cannot invest his or her IRA assets in a corporation, partnership, trust, or estate in which he or she has a 50 percent or greater interest. However, an IRA owner can invest IRA assets in a business in which he or she owns, for example, one-third of the business while also acting as the CEO. The bill adjusts the 50 percent threshold to 10 percent for investments that are not tradable on an established securities market, regardless of whether the IRA owner has a direct or indirect interest. The bill also prevents investing in an entity in which the IRA owner is an officer. Further, the bill modifies the rule to be an IRA requirement, rather than a prohibited transaction rule (i.e., in order to be an IRA, it must meet this requirement). This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments.
Section 138315
Sec. 138315. IRA Owners Treated as Disqualified Persons for Purposes of Prohibited Transactions Rules. The bill clarifies that, for purposes of applying the prohibited transaction rules with respect to an IRA, the IRA owner (including an individual who inherits an IRA as beneficiary after the IRA owner’s death) is always a disqualified person. This section applies to transactions occurring after December 31, 2021.
These sections, especially 138312 and 138315 are very damaging.
Those restrictions are across the board, not just striking back at those making millions.
Supposedly the concern is a level playing field.
But if leveling the playing field is the genuine concern, instead of disallowing these investments, how about opening them up to everyone?
I am not sure what ****head proposed these rules, but we need to raise a fuss over these provisions now.
Common Cause also has a way to Find Your Representatives.
Please take action.
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They obviously don’t want the hoi-polloi to be rubbing elbows with their own.......................
How about a CliffsNotes Version vs a cut and paste mishmash of info the avg slob doesnt understand.
BKMRK.
Good idea.
The rich get richer
The poor get the picture ...
If I ask my CPA he wii probaly wont know what Iam talking about.
Or end up telling me dont worry about it as it does pertain to me.
Vanguard manages my $$ so I may ask them.
If I remember
Private placements are not typical IRA investments for the average Joe. So, this has very little impact.
Here’s how I see this:
Under current law, the rich can put their truly speculative investments, or shares and options on their own companies (as to which they have more control over subsequent appreciation than you and I have over the shares in our IRAs) into a Roth IRA.
Mitt Romney did this with parts of the companies Bain Capital acquired -— the “spinoff” -— and his IRA is now over $100 million. Peter Theil did it with Paypal shares and his IRA is now over $5 billion.
You and I (assuming you aren’t as rich as Mitt Romney or Peter Thiel) aren’t ever getting into that club.
Libertarians should not support one set of rules for the uber wealthy and another set for the rest of us. The “private placement” exception is a rule that allows self-dealing, something which I can never do in my IRA. For example, I cannot have my self-directed IRA purchase any property from me or any of my relatives, regardless of the price. It is a prohibited transaction that comes with serious penalties if you try it.
But Mitt could have his Roth IRA buy his spinoffs, and Theil could have his Roth IRA buy shares in the company he founded.
So the Dems get to virtue signal but watch as the final bill, if any actually passes, eliminates most of the described changes or adds new exception that allow the uber wealthy to continue doing what they have always been doing.
Am I misreading this or are they smoking something? The statement about the current state of the law, not the change. How does putting oneself in the same position as the shareholders introduce the risk of self-dealing if you're already supposed to be acting in the interests of the shareholders? Wouldn't it REDUCE that risk? Aruh?
And what about self-directed IRAs that hold rental real estate for example? That's legal, and in that case, you're still both management and investor (albeit typically the sole investor).
It’s government overreach without question but I am curious how many IRAs participate in private placements?
Looking like us peons with only a couple of Mill need not worry.
Ha Ha
what about contribution limits?
I have always opposed IRA’s with their resultant penalties for early withdrawal and the other problems associated therein.
Save or don’t save. There should be no tax advantage or penalty.
Are you saying that moving a regular IRA to a Roth IRA is now verboten?
Keeping the proletariat down and under control
Tax law has always been used to encourage or discourage behavior. Getting married, having kids, spending money, saving money, buying a house, assuming debt, investment in government favored companies and industries. Taxation is about control.
My take on this is that the new laws are designed to prevent people from investing their tax advantaged IRA assets in speculative unregulated assets (like bitcoin?) or assets where they are otherwise financially liable. The intent seems to be to lower the risk of IRA investments so they are available at retirement and not coupled with other personal debt obligations that apply to business owners and could be confiscated with a bankruptcy or reorganization.
This seems like prudent diversification of long term tax advantaged assets that any intelligent investor would already be doing. The fact that people need a law to get them to do the right thing is just an admission that a lot of people are financially crazy.
BFL
Camel’s nose.
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