Congress Wants to Limit Choice and Growth in Your Self Directed IRA

Congress limit choice in IRAs

For the first time in the history of the United States, Congress is proposing the forced distribution of IRA accounts. Second and equally unprecedented is that they want to seriously limit what you can invest your retirement funds in. The House Ways and Means Committee Bill Modification of Rules Relating to Retirement Plans Part 3 regarding IRAs is full of mandates and limits that hurt everyday savers. Most people would likely not support what is being proposed; the issue is most people don’t even know about it because it is tucked away in 3 pages within a 645 page proposal. We need to draw attention to Part 3 by writing to our elected officials and asking them to redline this section so that these proposed changes do not slip through unnoticed.

One of the most stunning portions in Part 3 is Section 138312 of the House Ways and Means Committee Proposals which says you will be limited in the type of private asset you can invest in. To put this in perspective, private assets account for close to 40% of assets held in IRAs. Second, if you have one of these in your IRA today, you may need to sell it in two years. If you cannot sell it, you have to pay tax on that asset.

Accredited Investors

The Securities and Exchange Commission has a rule called the accredited investor rule. It defines a set of investors who the SEC says can invest in unregistered offerings for one of two reasons: they either meet income requirements so they are presumed to be able to withstand a loss OR they hold a professional designation or hold some knowledge giving them a certain sophistication to evaluate unregistered opportunities. The concept was implemented to protect investors from being taken advantage of or risking their entire savings on something they might not understand. So accredited investors are those who have the ability to evaluate these opportunities. The interesting thing is that while the SEC has put this system in place to allow people to invest in unregistered opportunities, this proposal would override it. Part 3 says accredited investors, those who are the only ones allowed to invest in certain opportunities, cannot invest their retirement funds in those specific opportunities. It’s completely counter to the entire setup of accredited investment options set forth by the SEC.

In August of 2020, the accredited investor category was actually expanded by the SEC to include more investors. Here were some of the reasons cited for increasing the accredited investor pool:

“Because a significant share of businesses that establish new funding relationships continue to experience unmet credit need, we expect that small issuers that face more challenges in raising external financing may benefit more from expanding the pool of accredited investors.”

“In particular, small businesses owned by underrepresented minorities may benefit from a larger pool of accredited investors.”

“Businesses owned by underrepresented minorities were more likely to demonstrate unmet credit needs relative to other groups, which suggests that these businesses may benefit from amendments intended to facilitate private market capital raising.”

“An increased pool of investors could bring… increased amounts of capital available to private issuers and a lower cost of capital, thus potentially increasing capital formation, primarily for issuers with limited access to capital, such as ones that are small, in early development stages, or in geographic areas or communities that currently have lower concentrations of accredited investors.”

What are unregistered offerings? They include small businesses, local shops, angel investment, crowdfunding, and minority- and women-owned opportunities. Per the SEC, “In 2019, registered offerings accounted for $1.2 trillion (30.8 percent) of new capital, compared to approximately $2.7 trillion (69.2 percent) that we estimate was raised through exempt offerings.” So while the SEC worked to be more inclusive in their definition of accredited investor, this proposal eliminates retirement funds as a source these investors can use to invest, completely reversing the intent of allowing access to more Americans to invest in people who need their capital to get their businesses off the ground.

A Typical Retirement Account Holder

One of our clients said this when they heard of this bill. “I have spent most of my life growing my IRA using Private Equities. I finally have almost $1M in my IRA which gives me peace of mind. If this bill becomes law, my IRA will be destroyed and any hope of a reasonable retirement will be gone.” This speaks for many and says it all.

95% of IRA accounts are under one million dollars and are held by average, everyday Americans. It is helpful to remember the concept of compounding when it comes to investing. If someone puts $6,000 away annually for 30 years earning 5%, they will have nearly $500,000 in their retirement account. Saving $6,000 a year over time is not something that only the uber-rich can do. These are diligent savers who have amassed savings to plan for the years when they will no longer be in the workforce.

This section of the proposal is indiscriminate to income level or age. President Biden campaigned on an exclusion not to tax individuals under $400,000. The crafters of this bill seem not to understand the implications of what it does. If you own a private asset in your IRA that must be distributed no matter what your income limit, you would be forced to pay income and possibly penalties based on your age. You hear about a wealth tax on the uber-rich. However, this is a saver’s tax, if Congress does not like your investment choices, you could be forced to pay tax.

Should the Stock Market Be the Only Choice for Retirement Funds?

Another unintended consequence of this bill is that by limiting investment choices, the stock market will really be the only investment option for IRAs. While not anti-Wall Street, many clients firmly believe in controlling their own retirement by investing in things they know and understand. Finally, it is important to note, alternative assets are typically in an IRA as part of a diversification strategy. Most of our clients do not have 100% of their assets in alternatives. Congress will mess up many well-thought retirement plans should this bill go through.

Because of the draconian nature of this bill, we are asking that you do not support Part 3 of the House Ways and Means Proposed bill to drastically affect and limit IRA accounts.

Please write your Congressperson today telling them you do not support this bill or limits on your retirement. If you would like a sample letter please feel free to reach out to us.

Thank you for taking the time to stay educated on these important issues that affect so many Americans.

Dave Owens, President of Midland Trust Company

Written by Dave Owens

President of Midland Trust Company

Congress Takes Aim at Retirement Saving

congress takes aim at retirement saving

Rather suddenly and without warning, a proposal to limit and control IRA accounts has been added in the House Ways and Mean Committee SAS X 1 part 3, specifically Sections 138312 and 138314. This proposal has several components that include limiting your IRA investment choices, capping the maximum value of an IRA, eliminating certain Roth Conversions, limiting IRA ownership in LLCs, and even forcing distributions for some taxpayers. These proposals caught most people off guard and seem to be completely reactionary to some high-profile investors who had incredible growth in their retirement accounts. Copy of proposed changes.

If you have an IRA, please review the following. Further, I ask that you write an email to your legislators.

Limitations to IRA Choices

Included in the proposal is a $10M cap on IRA accounts. This is clearly intended to punish IRA holders who successfully grew their accounts to large values. In our business, 98% of the IRA accounts are under $1M, and we can count on one hand the number of $10M accounts. The $10M cap spurred this overcorrection aimed at a tiny fraction of investors. For every target of over $10M, thousands and thousands of IRA account holders get caught in the net of this sweeping legislation.

Limiting your Investment Choices

The other major part of the Ways and Means Committee proposal limits the types of investments you can make. “The bill prohibits an IRA from holding any security if the issuer of the security requires the IRA owner to have a certain minimum level of assets or income, or have completed a minimum level of education or obtained a specific license or credential.” The committee believes that you cannot determine the suitability of these investments for your entire portfolio. In particular, this includes “accredited investors.”

What Is an Accredited Investor?

In their April bulletin, the IRS posted the following definition of an accredited investor includes anyone who:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year, OR
  • has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence).

That same article goes on to explain why this designation exists: “One reason these offerings are limited to accredited investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering unnecessary the protections that come from a registered offering.” By their own definition, these are sophisticated investors who have access to a subset of investments, but as such, they are not allowed to invest their retirement funds in assets that require that. The contradiction is exceptional.

Secondly, and possibly the most stunning proposal, they are mandating you remove all assets that meet their new definition of prohibited from your IRA by December 31, 2023. This would be a logistical nightmare and a potentially taxable event for many Americans regardless of party affiliation.

Overall, the elimination of these types of investments means retirement accounts could be limited to brokerage accounts. And while the stock market is doing fine now, what if that changes?

Elimination of Roth Conversions

As it stands now, you can convert a Traditional IRA, after paying the tax, to a Roth IRA. This bill proposes the elimination of Roth conversions for both IRAs and employer-sponsored plans meeting income requirements.

Furthermore, this section prohibits all employee after-tax contributions in qualified plans. It prohibits after-tax IRA contributions from being converted to Roth regardless of income level, effective for distributions, transfers, and contributions made after December 31, 2021.

Forced Distributions

This bill directly contradicts the President’s pledge not to raise taxes on individuals making under $400,000. Section 138312 of this proposal forces liquidation of certain assets held in a retirement account no matter who you are or how old you are. A forced liquidation or distribution can cause a taxable event.

The Ripple Effect

In addition to what this legislation could do to your IRA, its implementation puts small businesses in peril.

We’ve seen IRA’s invest in a host of local ventures. We’ve seen community banks get started, women-owned businesses emerge, Angel investing opportunities fulfilled. And those small businesses employ people and fill a niche in their communities. We’ve seen these businesses launch through people using IRA funds to help them get started. This is all at risk with this legislation.

What Is Next?

At Midland Trust, we have tens of thousands of average everyday Americans with these types of assets in their portfolios and need to express our dismay over this potential legislation.

If you oppose these changes, please write the House Ways and Means Committee and all your Congressional Representatives, no matter which party affiliation, to stop this major change that only hurts the average investor.

Not sure how to contact your U.S. Congressional Representative?
Go here.

Not sure how to contact your U.S. Senators?
Go here.

Dave Owens, President of Midland Trust Company

Written by Dave Owens

President of Midland Trust Company

Support Local Businesses With an IRA

supporting local businesses

The pandemic affected many small businesses with lockdowns and mandates. Companies had to adjust on the fly, temporarily close, or close-up shop altogether. Small businesses play an essential role in the economy and, more importantly, your local community. Supporting your local businesses has never been more important. Below, we discuss why your support helps your community and how you can provide the support they desperately need.

6 Reasons Why Supporting Local Businesses Helps Your Community Overall

Local Jobs

Local jobs are ideal because they do not require much travel and will decrease your area’s unemployment rate. Employment levels influence a range of other standard-of-living metrics, such as disposable income, home foreclosure rates, and new small business startups.

More Money Circulating in the Local Community

When customers use a local business, most of that money will go back into the local economy. Workers may grab lunch or dinner around where they work, run errands on breaks, or grab drinks after work. Small businesses also tend to outsource with other local businesses. For example, suppose a local pizza restaurant wants a new logo or help designing ads. In that case, they are likely to reach out to a local graphic design company versus a national brand.

They Build the Community

With thriving small businesses, the impression can be vitality and wealth. A thriving community has many shops and restaurants ,which is attractive to local consumers, nearby communities, and tourists. The positive vibes can even increase property values.

Increase Tax Revenue Close to Home

A small business generates revenue and tax dollars for your local community. In doing so, your school districts, police, firefighters, public transit, and healthcare will all receive more funding. The same cannot be said if you shop online and purchase goods and services from a business outside of your local community.

Spurs Innovation and Growth

Small businesses are unique from large corporations. All large corporations you see today likely started as small businesses and grew over time. McDonald’s began with one location and now has millions. Facebook started at one school and now has billions of users worldwide. Small businesses need to stand out from the competition to attract business which can lead to innovative ideas.

Community Involvement

Overall, small businesses tend to be more involved in their communities. Small companies are more likely to donate time and money to local charities and nonprofits. They also tend to sponsor, organize and host local events to maintain an active community.

4 Basic Ways to Support Local Businesses

Use Their Services/Products

The most obvious of them all, shop locally. Try out a local restaurant you haven’t dined at before, or go into a mom-and-pop shop.

Stop Buying Online

Even if you buy something from a national brand but do it locally in person instead of online, you are still helping the community. Buying from a brick-and-mortar business instead of online helps that specific location succeed. This success ensures jobs stay in the area and also helps generate tax revenue for your local community.

Order Take-Out

You do not have to dine-in to support a local restaurant. Order food to-go and pick it up at the restaurant. Don’t want to leave your house? Many local restaurants offer delivery.

Buy Gift Cards

The gift card can be a gift to someone or a way for you to help your local business now by saying you’ll eat or shop there in the future, just not today.

Did You Know That You Can Support Local Businesses Using Your IRA Funds?

Here are two ways you can infuse capital into a local business using your IRA.

Business Loans

Businesses looking to raise money quickly may need to take out a loan. Generally, people think they need to go to the bank for a loan, but that is not necessarily the case. An individual can also lend a business money via a promissory note, a legally binding contract. This loan can be either unsecured or secured. With a loan to the business, you name the terms for how they pay you back. Payments could be quarterly, semi-annual, yearly, or even balloon payments made with interest.


You could buy your way into the company and form a partnership. For example, give the business $100K in exchange for a 10% ownership interest in the company. Not only would you be helping the business grow, but you now may receive a share in the profits and have a say in the future of the business. If you find an opportunity to invest in a local, private business, consider using your IRA.

There are few investments you can make that will benefit the good of the people. Investing in your community is one of them. Believe it or not, the IRS states that your IRA can invest in anything except life insurance and collectibles. This means that you can invest in and support a local business within your self-directed IRA. Depending on the type of business, you may be able to see your return on investment come back tax-deferred like most IRA investments.

Caveat: when an IRA is involved, you cannot receive any special treatment. This means you would not be able to get free meals from the restaurant, for example, or a larger discount on services than what a typical customer would receive.

How To Get Started With an IRA

Midland specializes in self-directed IRAs and HSAs that hold alternative investments such as real estate, promissory notes, futures/forex accounts, cryptocurrencies, real estate, and private stock. Midland will be able to hold your investment and do the necessary record keeping and reporting to the IRS that allows you to invest in alternative assets through your self-directed IRA.

If you have any questions about investing with an IRA, please contact us at (239) 333-1032. Visit our website for more information on private lending and private equity.

Andy Anger, Senior Client Services Associate

Written by Andy Anger

Senior Client Services Associate

MIDLAND TRUST COMPANY, OR ITS AFFILIATES OR SUBSIDIARIES (COLLECTIVELY REFERRED TO AS “MIDLAND”), IS NOT A FIDUCIARY: Midland’s role as the Custodian and/or Administrator of self-directed retirement accounts is non-discretionary and/or administrative. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account, and is responsible for conducting his/her own due diligence. Midland has no responsibility or involvement in selecting or evaluating any investment and does not conduct due diligence on any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.