Proposed Legislation That Could Affect Self Directed IRAs

Published on November 6, 2026

There are two proposals that were introduced in Congress this year (neither is law yet), that could affect certain taxpayers and their self-directed IRAs.

Mega-IRA Bill

The Mega-IRA Bill was introduced in July 2026 by Senator Ron Wyden (D-OR) and Representative Richard Neal (D-MA). This bill ( S. 5040 and H.R. 9813 in the Senate and the House) targets what they call “mega-retirement accounts” and the high-profile investors who have used self-directed IRAs and Roth IRAs to invest in startups, private companies, and other non-publicly traded assets to grow considerable retirement wealth.

The legislation calls for two separate requirements to be met:

If both requirements are met:

  1. The taxpayer would be prohibited from making additional annual contributions to a Traditional or Roth IRA.
  2. Accounts with balances between $10 million and $20 million would have required distributions equal to 50% of the amount that exceeds $10 million (so if the balances came to $15 million, which is $5 million over, the taxpayer would have to take a distribution worth $2.5 million).
  3. For balances over $20 million, the taxpayer would be required to withdraw the amount above $20 million from  Roth accounts first and from Roth designated accounts in defined contribution plans second.

As Sen. Wyden stated about the legislation, “Tax-preferred retirement accounts are not supposed to be a loophole for the ultra-rich to shelter immense fortunes; they’re a lifeline for working Americans who may not otherwise have a dignified retirement.”

If this proposal becomes law, it will become effective after 2033, giving account owners plenty of time to do serious tax planning around how those distributions and inability to contribute, would affect their financial picture. You can read more about it here.

How does this affect self-directed IRAs?

Although the Mega-IRA Bill will not prohibit alternative assets, it does target accounts that have grown through investments in private companies prior to those companies becoming publicly traded. The issue of a forced distribution for high-net-worth investors who meet the criteria above may be a problem for those whose SDIRAs hold private investments (such as private equity and venture capital holdings, private funds and syndications).

Selling those assets on demand to meet the legislation’s requirements could prove challenging depending on the assets’ framework, as it may force the investor to make an in-kind distribution which could have significant tax ramifications.

SMART Savings Act of 2026

The SMART Savings Act of 2026 was introduced by Senator John Barrasso (R‑WY) and Representative Claudia Tenney (R‑NY). This bill calls for removing IRAs from the prohibited transaction rules in IRC §4975 (which currently apply to employer plans); this is the code that imposes a 15% tax on prohibited transactions. A separate self‑dealing prohibition (under IRC §408) would be preserved. In short, the bill would change oversight and service provider rules and if enacted, could significantly change how IRAs, financial advisors, and service providers are regulated.

Current law applies Section 4975’s prohibited transaction framework to IRAs and several other tax-advantaged individual accounts. The SMART Savings Act would generally narrow the definition of prohibited transactions to certain employer-sponsored plans described under Sections 401(a) and 403(a), removing IRAs, HSAs and certain other plans from Section 4975, while preserving a direct prohibition against self-dealing by IRA owners and beneficiaries.

According to Rep. Tenney’s website, the legislation’s goal is to modernize outdated federal regulations that govern IRAs, reduces unnecessary costs, and expands access to lower-cost retirement investment options for American savers.

From Rep. Tenney’s website:

“The SMART Savings Act would bring overdue reforms to the tax rules governing Individual Retirement Accounts (IRAs) that were originally written for large employer-sponsored pension plans. Current regulations make it more expensive and burdensome for financial firms to offer certain lower-cost investment services to IRA holders, despite IRAs already being subject to extensive federal and state oversight. The legislation removes these unnecessary barriers while preserving prohibitions on self-dealing and maintaining existing consumer protections enforced by the SEC, FINRA, FinCEN, and state securities regulators…”

How would this affect self-directed IRAs?

If the SDIRA conducts business with certain service providers or entities, doing so with those third parties may or may not be considered a prohibited transaction. Additional guidance on the proposed rules and how they may affect SDIRAs is needed.

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