S 5040: A bill to amend the Internal Revenue Code of 1986 to impose limitations on high-income taxpayers with large retirement account balances.

S 5040 in plain English: This bill would amend the tax code to impose new restrictions on high-income taxpayers who have accumulated large retirement account balances. It targets individuals with retirement savings exceeding $10,000,000, limiting their ability to continue contributing to or growing those accounts under favorable tax treatment. Income thresholds for the restrictions vary by filing status, ranging from $225,000 for married individuals filing separately up to $450,000 for married couples filing jointly.

Stated purpose

The bill aims to limit the amount that high-income taxpayers with large retirement account balances can contribute to individual retirement plans each year, by restricting new contributions once a person's combined retirement balance reaches $10 million.

Key points

• Targets retirement accounts with balances exceeding $10,000,000 for new tax limitations
• Income thresholds vary by filing status: $450,000 for married filing jointly, $400,000 for single filers
• Married individuals not filing jointly face a $225,000 income threshold; heads of household face $425,000
• Dollar thresholds are adjusted by rounding to the nearest $250,000 or $1,000 increment depending on the provision

Arguments supporters make

• The tax advantages of retirement accounts were designed to help ordinary workers save for retirement, not to allow the ultra-wealthy to shelter tens of millions of dollars from taxes indefinitely.
• Capping contributions above $10 million ensures the retirement tax benefits remain targeted at their intended purpose, potentially freeing up revenue for other public priorities.
• The bill still allows rollovers, inherited accounts, and employer-based contributions under certain plans, so it preserves flexibility while reining in the most extreme cases.

Arguments opponents make

• Setting a government cap on how much someone can save in their own retirement account is an intrusion into personal financial planning that could discourage saving more broadly.
• High earners already pay higher taxes; adding another layer of restrictions on retirement contributions amounts to double penalizing success and could push wealth into less-transparent vehicles.
• The $10 million threshold is not indexed in real time and may eventually capture more middle-class retirees over decades, as inflation erodes what feels like a large balance today.

Tradeoffs

Restricting tax-advantaged contributions for the wealthiest savers could generate additional tax revenue and narrow perceived inequities in the retirement system, but it also limits the financial freedom of high earners and adds compliance complexity for both taxpayers and plan administrators.

Current status in Congress: In committee.

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