When 2011 ended its journey, 314 taxpayers had about $25 million each kept in a tax deferred Individual Retirement Accounts. These findings were recently estimated by the Congress’ Government Accountability Office (GAO). The GAO used data extracted from Internal Revenue Service and estimated that approximately $81 billion in total was held in the 314 IRAs – coming to a staggering $258 million for every US taxpayer.

Retirement tax breaks

The above numbers were published as a part of Senate Finance Committee Hearing where retirement tax breaks were the subject under discussion. A few Democrats put forward the argument that such tax breaks are too preferential towards the well-off. The issue became politically important during the Presidential campaign in 2012 when Mitt Romney, the Republican candidate disclosed that his IRA amount could be in the region of $102 million.

In 2013, the Obama administration brought a plan to restrict the maximum amount that a single individual could enjoy in all his or her retirement accounts (tax favored) combined. The plan was criticized by experts who warned that it will restrict incentives, which the small employers give to the worker’s 401(k)s. Apart from this, the other proposals given by the Democrats will curb the ability of the non-spousal heirs when it comes to stretching out the withdrawals from big IRAs.

The full picture

As per the new numbers published by GAO, about 43 million taxpayers subscribe to IRAs and about 622,000 approximately have an amount that ranges between $1 million to $5 million in their IRA accounts. However, only 9,000 taxpayers enjoy $5 million or more in their IRAs.

The question in the case is how can a person accumulate $1 million and above in IRAs. There are modest limits to IRA contributions (In 2014, the maximum was $5,500 and for individuals aged 50 years or more, it was $6,500). However, large IRAs are possible through a number of ways.

The most common method is via rollovers from defined contribution plans, which are sponsored by employers. Plans like 401(k)s and orthodox defined pension plans permit lump sum rollovers after retirement. According to GAO calculations, say an employee received maximum combined contribution from both the employer and the employee to defined contribution plan. If the contribution was made every year between 1980 and 2011, which was subsequently invested in S&P 500 portfolio, the result would be approximately $4 million in the account by 2011 end.