Call-to-Action: Section 138312

ADISA opposes this provision and encourages its members to write to your federal representative and U.S. Senators asking that this provision be removed from consideration.

Voice your opinion here

ADISA supports removing Section 138312 from the House Ways & Means Amendment in the Nature of a Substitute. As drafted, this provision would prohibit IRA investments from including publicly issued securities such as nonexchange traded Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs) as well as privately issued investments.  

Section 138312 has many negative implications for IRA savers who are investing responsibly for their retirement including the following.

Denies all investors the freedom and flexibility to maximize their retirement assets by limiting the types and mix of investments that individuals can hold in their IRA.

• Currently, IRAs can hold multiple, diversified asset classes including alternative investments. IRA owners grow their balances through contributions as well as asset appreciation, thereby affecting the overall value of the IRA for retirement. Since alternative investments are non-correlated investments, i.e., less responsive to economic fluctuations, alternatives can be used to hedge one’s investment portfolio against public market swings. By prohibiting investors from including alternatives in their IRA portfolios, Congress is limiting investors’ individual choice on how to save their hard-earned dollars, negatively impacting the growth of the individual’s long-term retirement savings.

   

  Forces Divestures Thereby Destroying Asset Valuation

   

• Forcing divestiture of investments into any period length is unacceptable. Such a mandate limits the options individual investors have for holding otherwise legal securities in their retirement portfolios.

  Creates a major step backward in efforts to close the wealth gap among our nation’s diverse population, by eliminating their access to wealth accumulation tools as a part of their retirement savings.

   

• Many alternative investments are not limited to accredited investors. Such widely held (and publicly offered) investments include nonexchange traded REITs and BDCs. These alternative investments and others provide investors of relatively moderate means with access to opportunities that otherwise would only be available to large institutional and wealthy investors. By disallowing these investments from being a part of an average investor’s retirement savings, this provision undermines existing opportunities for financial growth and equity.
  

  Undercuts recent wealth accumulation and retirement savings policies that promoted fairness by expanding investment opportunities to a broader cross-section of investors.

   

• The SEC recently redefined the term “accredited investor” to expand the pool of retail investors who can access alternative investments, yet this provision places a random limit to that access by forbidding their acquisition by IRAs. The proposal erodes recent steps that would have provided greater fairness, equity, and opportunity to investors of varying means.

   

  This is a complex issue with serious unintended consequences yet has not been subject to adequate study and discussion by Congress.

   

• This provision represents a fundamental policy shift in the way Americans of all means save for retirement using their IRAs. This policy change deserves to be appropriately discussed and fully vetted. Alternatives are long-term investments that cannot be divested without substantial devaluation; even GAO Report 170192 recognizes this detrimental impact on account balances. The provision should be removed until all consequences have been examined.

The proposal, including the two-year divestiture provision, reads as follows:

SEC. 138312. PROHIBITION OF IRA INVESTMENTS CONDITIONED ON ACCOUNT HOLDER’S STATUS.

(a) IN GENERAL.—Subsection (a) of section 408 is amended by adding at the end the following new paragraph:

(7) No part of the trust funds will be invested in any security if the issuer of such security (or any other person specified by the Secretary) requires the individual on whose behalf the trust is maintained to make a representation to the issuer or such other person that such individual—

(A) has a specified minimum amount of income or assets,

(B) has completed a specified minimum level of education, or

(C) holds a specific license or credential.

(d) EFFECTIVE DATES.—

(2) SPECIAL RULE FOR EXISTING INVESTMENTS.—If, on the date of the enactment of this Act, an individual retirement account holds an investment prohibited under section 408(a)(7) of the Internal Revenue Code of 1986 (as added by subsection (a), the amendments made by this section shall apply to such investment for taxable years beginning after December 31, 2023.

Last month, ADISA sent letters to various House members opposing the language in Sec. 138312. Read the news release here.