The RISE Act proposed by Senator Ron Wyden of Oregon would significantly impact self-directed IRAs. I previously wrote about the bill here and provided a detailed analysis. In summary, the bill would require that all self-directed IRA investment purchases be valued by a third-party appraiser and reported on the IRA owner’s personal tax return. In addition, the Act would change the disqualified person rule for companies from 50% to 10%. The Act also greatly effects Roth IRAs and would eliminate Roth conversions and would cap Roth IRA accounts at $5M.
Here are few quick updates that are very important to the bill.
- Senator Orrin Hatch of Utah (R) has introduced the Retirement Enhancement and Savings Act of 2016. This bill is farther long in the process and addresses retirement account issues but is entirely un-related to Senator Wyden’s proposed RISE Act the impacts self-directed IRAs. I’ve had a few clients worried as they’ve ran across this bill as it is currently working its way through the Senate.
- Senator Wyden’s RISE Act is in proposed form and is out for comment until December 7, 2016. You can reply with comments to Retirement_Savings@finance.senate.gov. I will post my Comment in a subsequent blog article.
- While the bill is sponsored by Democrat Senator in a Republican controlled Senate, it is still vitally important that the Senate Finance Committee understand the roadblocks and burdens that the bills IRA provisions will cause to hundreds of thousands of Americans who are investing for retirement with their self-directed IRA.
- If your Senator is a member of the Senate Finance Committee, I would highly recommend sending focused and professional comments to your Senator regarding provisions that will hinder your ability to save and invest for retirement. The current members of the Senate Finance Committee can be found here.
Additionally, if you have comments or feedback relative to the proposed bill, please feel free to that to me at firstname.lastname@example.org.
The Retirement Improvements and Savings Enhancements Act (“RISE Act“) has drastic changes and provisions that effect self-directed IRA investors. From mandatory third-party valuations on all retirement account investment transactions to changing the 50% disqualified company rule to 10%, the bill has some significant changes that will negatively affect your ability to self-direct your account. There are some favorable provisions for IRA owners, however, the negatives greatly outweigh the positives.
Most Important Provisions
The bill sponsor is Sen. Ron Wyden (D-OR) who is the Ranking Member of the Senate Finance Committee and the Joint Committee on Taxation. Here’s a quick run-down of the most troublesome provisions that apply to self-directed IRA investors:
- Valuation Purchase/Sale Requirement. Mandatory Valuation Requirement for Private IRA (non-public stock market) Transactions: The new proposal seeks to require gifting valuation rules and standards for IRA transactions. This rule will force IRA owners to get a valuation before making any private investment. This valuation would include real estate, private company (e.g. LLC, LP, corporation), and note investments. The gifting valuation rules were created to value gifts where no value is set between a buyer and seller. mandating those same rules on actual transactions between an IRA and another unrelated party is unrealistic and unnecessary to establish actual fair market value.
- 50% Rule is Reduced to a New 10% Rule: Changes the 50% rule that states a company is a disqualified person to an IRA when it is owned 50% or more by disqualified persons (e.g. IRA owner and certain family). The new rule makes a company disqualified when owned 10% or more by disqualified persons.
- Roth IRAs Capped at $5M: Roth IRAs will be capped at $5M. Any amount over $5M must be distributed from the Roth IRA.
- Eliminate Roth Conversions: Traditional IRA funds cannot be converted to Roth IRA funds. Roth IRAs will be allowed only if the account owner makes initial Roth IRA contributions and only when they meet the Roth IRA contribution limits, which restricts high-income earners.
- Require RMD for Roth IRAs: Roth IRAs are currently not subject to required minimum distribution (“RMD”) rules because the amounts distributed do not result in tax. This rule will change and RMD will apply to Roth IRAs when the account holder reaches age 70 ½.
These proposals will have drastic impacts on self-directed IRA investors. The valuation requirement is perhaps the most dramatic as it will require valuations before an IRA can buy an asset and before it can sell an asset. Not only will this cause administrative issues and increased costs, but it will undoubtedly replace the ability of an IRA buyer or an IRA seller from transacting their IRA at the price and value they determine to represent the actual current fair market value of their investments.
I have written a detailed analysis of the bill which I plan to share with the Senate Finance Committee and the Joint Committee on Taxation. I welcome your input as a self-directed IRA investor and plan to advocate for common-sense rules that help self-directed investors take control of their retirement. My draft bill analysis can be accessed at the link below. Please send your comments to email@example.com.