In the last few weeks Mitt Romney’s Individual Retirement Account has come under intense scrutiny because of the amount of money he has stashed away in it.The Wall Street Journal estimates the value of Romney’s IRA to be somewhere between a whopping $20 million and a staggering $101.6 million.
Compare this to the numbers in a Congressional Research Service analysis of IRA data from the Survey of Consumer Finances. According to the analysis, in 2007 the median account balance for a traditional IRA was only $29,000, while the median balance of a rollover IRA was just $53,000. This is a far cry from the massive size of Mitt Romney’s IRA, which, by the way, is perfectly legal and operates in full accordance with the law.
And that’s the problem.
As our IRA fact sheets point out, people who use their IRAs to save for retirement receive certain tax advantages. Yet, according to the Tax Policy Center, most of the tax advantages for retirement savings go to those who can already afford to save for retirement instead of the people who really need it. As the Center’s executive vice president and policy director Karen Friedman stated in her September 2011 testimony before the Senate Finance Committee, “two‐thirds of the value of tax expenditures for retirement savings plans goes to households in the top income quintile.”
Unfortunately, one of the proposed solutions to the problem of people not saving enough for retirement is simply to increase the maximum contribution limits to retirement plans. However, another Congressional Research Service report, Individual Retirement Accounts (IRAs): Issues and Proposed Expansion, notes that proposals to expand the amount people can save in IRAs are more likely to “direct the benefits [of IRA tax breaks] toward higher-income individuals.
So, the data show that these tax incentives are upside-down, disproportionately benefitting higher-income individuals who can already afford to save for retirement. But what about people who are living paycheck to paycheck and struggling with everyday costs like health care, transportation, and child care? A Government Accountability Office report, Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits, outlines several incentives that would help low-income workers become better prepared for retirement. Among these is a PRC-supported proposal that would expand and extend the Saver’s Credit for low-income workers. Other recommendations include providing a government match for the contributions low-income workers make to their retirement plans, while another recommendation aims to spur retirement saving among low-income workers by depositing the tax credit directly into their retirement savings accounts.
While it’s great that Congress recognizes the need to encourage retirement saving, it is time to look at these incentives to ensure that they are going to the people who need help saving for retirement the most.