Democrats target mega 401(k)s with new cap on rich savers
A Wyden-Neal bill would curb tax-favored retirement accounts for high earners with more than $10 million saved in IRAs and 401(k)-style plans.
By Sal Moretti · Money Reporter
3 min read
More than 200 people held over $85 billion inside tax-sheltered retirement accounts at the end of 2024, according to the Joint Committee on Taxation. Now two senior Democrats want to squeeze off the tax perks for ultra-rich savers with monster IRAs and 401(k)-style balances.
Sen. Ron Wyden of Oregon and Rep. Richard Neal of Massachusetts introduced legislation Wednesday aimed at high earners who have built more than $10 million in tax-favored retirement accounts.
The bill would apply to individuals with modified adjusted gross income above $400,000, or married couples filing jointly with income above $450,000. If enacted, the limits would take effect after Dec. 31, 2033, according to the lawmakers.
Wyden and Neal said the proposal is meant to stop wealthy households from using retirement accounts as tax shelters. Wyden, the ranking Democrat on the Senate Finance Committee, said retirement tax breaks should support working Americans, not subsidize people worth hundreds of millions or billions of dollars.
How the proposed cap would work
Under the bill, affected high earners with more than $10 million across traditional IRAs, Roth IRAs and defined-contribution plans would face limits on new contributions to tax-favored accounts.
The measure also would force distributions for some wealthy account holders. The lawmakers said individuals covered by the proposal would have to withdraw 50% of the amount above $10 million across their combined retirement accounts.
For account holders with more than $20 million, the bill could require distributions of up to the full excess amount from Roth IRAs and Roth portions of defined-contribution plans, according to the proposal.
That matters because Roth accounts are funded with after-tax money, while qualified withdrawals later are tax-free. Traditional accounts generally allow pre-tax contributions and tax the money when it is withdrawn.
The numbers behind the push
The Joint Committee on Taxation found that 208 individuals had more than $85 billion combined in tax-sheltered retirement accounts at the end of 2024. Their average balance was $409 million.
The committee also found that more than 32,000 people each had over $10 million in tax-sheltered retirement accounts, with an average balance of $17 million.
For regular savers, those sums are far beyond the usual 401(k) limits. The annual employee contribution limit for 401(k) plans is $24,500, or up to $35,750 for people ages 60 to 63 if their plan permits it. Total employee and employer contributions cannot exceed $72,000 in 2026.
Critics of mega retirement accounts argue that some wealthy investors use tax-advantaged accounts to buy undervalued shares of private companies, allowing gains to build inside retirement vehicles while staying within contribution limits. The Wall Street Journal has reported on that strategy.
Dan Doonan, executive director of the National Institute on Retirement Security, said the Wyden-Neal plan would address a tax preference that benefits households with unusually large retirement accounts more than typical savers. He said some wealthy households can keep assets growing with tax advantages for decades.
Neal said the retirement system was built to help workers gain financial security after their careers, and argued there is no reason for taxpayer-subsidized multimillion-dollar accounts while many workers struggle to save.
Federal officials have floated similar curbs before. The Obama administration proposed a cap of a little more than $3 million on total tax-advantaged retirement balances, while the Biden administration later proposed limits tied to aggregate balances above $10 million.
This story draws on original reporting from MarketWatch.