PRESS RELEASE: CFAR Lauds Introduction of the Retirement Security and Savings Act of 2021 »

The Problem
IRAs are an important part of Americans’ retirement savings but complicated rules make them hard to use and unfairly punish blameless Americans for making common mistakes without an opportunity to fix them.
Learn More

IRAs play a critical role in securing Americans’ retirement savings

Over 42 million, or 34 percent, of U.S. households have IRAs

IRAs account for over 1/3 of the nation’s $25 trillion in retirement savings

For the over 40 percent of Americans who don’t have access to a workplace retirement plan, IRAs are the only source of dedicated retirement savings available to them

IRAs operate at severe disadvantages to employer-sponsored retirement plans

IRAs are subject to many of the same complex rules as employer plans, but individuals don’t have the resources employer plans do to comply with those rules. Worse yet, much less government guidance is available to IRAs than to employer plans.

Because of these inequities IRAs are prone to common errors.

“It’s easy to make a mistake. Consider excess IRA contributions. In 2012, people age 50 or older can contribute $6,000 to a traditional or Roth IRA, or their taxable compensation for the year -- whichever is smaller. A person who makes the maximum contribution at the start of each year may lose his job and fail to meet the taxable compensation hurdle. Or a retiree whose only income comes from pensions and dividends may not realize that “compensation” generally refers to earned income such as wages.”

-“The IRS Cracks Down on IRA Mistakes," Kiplinger

Every year in every Congressional district in the country an average of nearly 3,500 constituents experience mistakes in reporting IRA distributions (that’s 1.5 million constituents nationwide every year and it accounts for only one type of error affecting IRAs).

“In Fiscal Year 2010, we found that approximately 300,000 individuals potentially contributed more than $3.9 billion of unreported excess contributions to IRAs in TYs 2006 and 2007.”

-TIGTA, Ref. No. 2015-10-020, “Actions Can Be Taken to Further Improve the Strategy for Addressing Excess Contributions to Individual Retirement Arrangements” (Mar. 2015)

IRAs are subject to disproportionately harsh penalties

IRAs face loss of tax qualification for prohibited transactions:

Source: GAO analysis of IRS publications GAO-17- 102

Yet in stark contrast to employer plans, IRAs have no programs to correct most errors

Employer plans have a dedicated program designed to facilitate voluntary correction and compliance after a mistake has occurred. These programs allow for vastly reduced penalties upon completion of corrections. The remedies for IRAs are extremely limited in some cases and nonexistent in others.

The result is blameless Americans losing hard-earned retirement savings

“Jean Hockenbrocht, a 76-year- old chocolate-factory worker in Lititz, Pa., says she missed four years of IRA withdrawals because her investment advisor confused . . . [the] rules. He had rolled her 401(k) to an IRA and mistakenly told her she should skip the distributions because she was still working.”

- “IRA Rules Get Trickier,” Wall Street Journal

“Arthur Elkin, a 60-year-old retired federal government worker in Delaware, didn’t realize he and his wife had made excess contributions to their Roth IRAs for seven years until he started working with a new accountant.”

- “IRA Rules Get Trickier,” Wall Street Journal