Retirement: Rise of the $10 million 401(k)

At a certain point, a “swelling retirement account isn’t really about retirement,” said Daniel de Visé in USA Today. The average American family has a little more than $268,000 saved up in an individual retirement account. But at least 32,000 people have amassed more than $10 million in workplace and individual retirement accounts like a Roth IRA, which can grow without taxes due on the earnings, according to the Joint Committee on Taxation. And “at the top of the wealth heap, 208 taxpayers have $85 billion saved in IRA-type accounts” that were originally designed for the middle class. “One might wonder how any American, no matter how wealthy,” could amass so much given the restrictions that govern contributions. After all, even “at its most generous,” the federal government only allows certain older Americans to contribute a maximum of $35,750 to a 401(k). Yet some people have found ways around the guardrails.

The “mother of all tax breaks” comes to those who stash startup shares in a Roth, said Brian Contreras in Inc. Entrepreneurs, hedge fund managers, and Silicon Valley insiders who have access to early and promising startups will often deposit “that stock in an IRA or workplace retirement account” and watch it pile up “massive gains while still enjoying substantial tax benefits.” Because those shares are cheap at first, they remain within annual contribution limits. Roblox board member Gregory Baszucki, for instance, has “at least $68 million worth of Roblox stock in his Roth IRA, and potentially about $158 million in tax-free holdings total.”

That’s how retirement accounts have become “an artifact of ever-expanding wealth inequality,” said Michael Hiltzik in the Los Angeles Times. While 40% of working Americans “don’t have any retirement savings at all,” the rich abuse the system to amass millions tax-free. “The outsize growth of plutocrats’ retirement accounts has bubbled up to public notice” again recently, after Sens. Ron Wyden (D-Ore.) and Richard Neal (D-Mass.) proposed legislation to cap IRAs and 401(k)s at $10 million. Even that amount seems “excessive.”

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But anyone can supersize their retirement account with some savvy execution, said Anne Tergesen and Theo Francis in The Wall Street Journal. A “little-known fact about 401(k) plans” is that employees can really set aside “as much as $72,000 in these accounts every year, rising to as much as $80,000 for those 50 and older.” To go beyond the usual $24,500 limit, a worker can contribute as much as another $47,500 after taxes—and then convert that money to a Roth 401(k). “Someone who saved the equivalent of today’s $72,000 maximum” every year from 1984 to 2019 would have had $20.6 million by the end of 2024, “assuming returns consistent with the S&P 500 index.”