Latest U.S. House bill impacts real estate investing

Current bill restricts use of retirement funds in real estate deals & other private offerings



We wanted to inform you that the current bill that is being proposed by the House Ways and Means Committee has a proposal that limits how investors can invest their retirement savings.

Section 138312 of the current bill states the following:

  • Prohibits an IRA from holding any security if that security requires the IRA owner to have a certain minimum level of assets or income (any deal or fund that requires investor accreditation).

  • If an IRA has invested in such securities, that IRA will be disqualified and the investor must pay taxes on that account.

  • The effective date is December 31, 2021 with a 2 year transition period for IRAs already holding such investments to dispose of the asset.

The impact of this bill is significant to investors. Investors will no longer be allowed to invest their retirement money in private real estate syndication deals, debt deals, start-ups or any other non-public offering.


Even more concerning, any IRA money that an investor is currently holding in these types of investments will need to be removed by the investor by December 31, 2023 to avoid their retirement accounts from becoming taxable. For example, if you have invested in a 5 year multi-family deal and that deal has not exited, the sponsor will either need to exit your capital out of the deal prematurely limiting your overall return or your complete IRA account will become taxable. Or if you have invested a small portion of your retirement funds in a start-up, that start-up will need to either return the capital to you or your IRA account will become taxable.


In the last few years, investor desire to diversify their retirement holdings beyond the stock market has exploded. This has not gone unnoticed by the companies that make revenue with a constant flow of IRA funds directly to the public markets. Clearly, there are forces working behind the scenes to reverse this trend and Section 138312 is an example of this.

What can you do:

  • Reach out to your elected officials in the US House of Representatives and the US Senate and tell them that you oppose Section 138312 because it limits investor choice and diversification of your retirement funds.

  • Inform your friends and family about this legislation and ask them to also oppose this proposal.


Below is additional information on the proposed bill:

Summary of each section of the House proposal:

https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SubtitleISxS.pdf

Section 138312 of the House bill can be found on the bottom on page 689:

https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/NEAL_032_xml.pdf

Links to search for your elected officials:

https://www.house.gov/representatives/find-your-representative

https://www.senate.gov/senators/senators-contact.htm

Sample text that you can modify to write to your elected officials:

Dear {insert name of official},

As an investor, I am writing to you about my opposition to Section 138312 of the US House bill. This proposal has a direct impact on investor choice and limits my ability to diversify my retirement savings. By not allowing me to invest my retirement savings in private investments, you are requiring me to keep all of my IRA money in the public markets.

Additionally, by forcing me remove this capital from existing deals or lose my tax-free status, you will have a significant impact on my retirement savings. I ask that you oppose this proposal. Thank you. {investor name}

Investors must come together, act with urgency and push back on legislation that clearly is not in their best interest. We ask that you join us and get the word out to your friends, family and broader professional network on this proposal and make our voices heard to our elected officials.

Thank you.

The Avestor team