For a half-century, Congress has been offering middle- and working-class Americans options for tax-advantaged individual retirement savings, largely to compensate for the disappearance of traditional pensions.

But the transition from so-called defined benefit pensions to defined contribution accounts such as 401(k) plans and individual retirement accounts hasn’t worked for millions of Americans. Roughly 40% of working Americans don’t have any retirement savings at all, and among those who do, their savings are too meager to support them through their retirement years.

That isn’t the case for America’s richest households. The number of 401k and IRA accounts with balances of tens of millions of dollars has mushroomed in recent years, an artifact of ever-expanding wealth inequality.

“Tax-preferred retirement accounts are not supposed to be a loophole for the ultrarich to shelter immense fortunes,” Sen. Ron Wyden (D-Ore.) said recently in introducing a measure to cap contributions to retirement accounts worth $10 million or more and increase the required annual distributions from those mega-accounts. “They’re a lifeline for working Americans who may not otherwise have a dignified retirement.”

Wyden introduced the bill along with Rep. Richard Neal (D-Mass.). They’re ranking members of the Senate Finance Committee and the House Ways and Means Committee, respectively.

Even Ted Benna, who is often dubbed the “the father of the 401(k),” is doubtful that his brainchild has served its target beneficiaries. “The 401(k) isn’t working really well now for many middle- and lower-income employees,” Benna told Bloomberg last month. One reason is that “many of them can’t afford to have money taken out of their paycheck even if they have the opportunity to do so,” he said.

It’s also true, however, that the tax advantages of defined contribution plans tend to skew toward wealthier households. That’s because many lower-income households owe little or no federal income tax, so they can’t profit from the tax breaks.

Under the law, contributions to traditional IRAs and 401(k)s are tax-deductible when they’re made and grow tax-free over time. Distributions from those accounts are taxable at the taxpayer’s top marginal rate, though. (Distributions from Roth IRAs, for which contributions aren’t tax-deductible, aren’t taxed upon withdrawal after the account holder passes age 59 1/2.)

According to the federal reserve, about 40% of households have no savings at all in tax-advantaged accounts. Only 9% of private-sector workers, or more than 11.3 million, have a traditional pension funded by their employers. Among those with retirement accounts, in 2019 the median balance was only $3,000 for those ages 25 to 55 and $10,000 for those 55 and older. Average balances are higher — $85,000 for the younger cohort and $222,000 for their elders — but that’s a reflection of the run-up in balances among the very wealthy.

Subcommittee Chairman Sen. Ted Cruz, R-Texas, speaks during a Senate Committee on the Judiciary joint subcommittee hearing to examine District Judges v. Trump, on Capitol Hill, Tuesday, June 3, 2025, in Washington. (AP Photo/Rod Lamkey, Jr.)

For the 1%, meanwhile, 401(k) plans and IRAs have been an indisputable boon. More than 32,000 taxpayers had more than $10 million each in those accounts, averaging $17 million each, according to the congressional Joint Committee on Taxation. The richest 208 taxpayers, the joint committee found, held a total of more than $85 billion in those accounts, with average balances of $409 million each.

In recent years, the outsized growth of plutocrats’ retirement accounts has bubbled up to public notice. During his 2012 presidential campaign, Mitt Romney disclosed that his IRA held as much as $101 million. For the most part, the sum reflected Romney’s earnings from Bain Capital, the private-equity firm he co-founded. At the time, a Romney spokesman defended the holding by asserting that the tax treatment of his IRA “is the same for Gov. Romney as it is for every citizen of the U.S.”

Under the law in effect then, Romney was required to start withdrawals from the IRA in 2017, when he reached the age of 70. Those withdrawals were taxed as ordinary income at the top marginal rate, currently 37% on income over $751,600 for married couples.

After Romney’s disclosure, the prime example of excessive retirement account balances was investor and entrepreneur Peter Thiel, whose Roth IRA was worth less than $2,000 in 1999 and $5 billion in 2021, when it was disclosed by the investigative newsroom ProPublica.

Thiel declined to respond to ProPublica’s request for comment at the time. But the source of the money was shares in PayPal, then a startup. Because PayPal was a private company, the shares’ value was conjectural; as PayPal staged an initial public offering in 2002, was subsequently acquired by EBay that same year, and was spun off as an independent company in 2015, its value soared. Its shares currently trade at about $60 and the company’s market value is about $51.7 billion. Thiel isn’t currently listed as a major shareholder.

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