With the revelation by ProPublica in June that Peter Thiel's Roth IRA is valued at a staggering $5 billion, the news media is widely reporting that Congress will be considering changes to IRAs that will curtail such hyper-growth of tax free money going forward.

In explaining how Thiel's IRA could have grown to this size from a starting value of less than $2,000 in 1999, ProPublica reported that Thiel had utilized a self-directed IRA to purchase stock in PayPal at startup. They further hinted that Thiel may have purchased the stock at a price well below fair market value at the time. If so, this might well have been regarded by the IRS as a self-dealing prohibited transaction, thus allowing them to disqualify Thiel's IRA and collect a considerable amount of tax revenue. But ProPublica also reported that the IRS had audited Thiel in 2011 and determined that no additional taxes were due.

This dramatically illustrates the difficulty in determining a fair market value for start-up company stock and likely explains the reason why Senator Ben Cardin (D - Maryland) is “considering reforms, such as banning the use of IRAs to purchase nonpublic investments”.

If enacted, this axe-rather-than-scalpel approach would mean the end of self-directed IRAs.

Yet the vast majority of self-directed IRA investments, while illiquid, are relatively easy to value on an annual basis as required by the IRS. This includes direct real estate ownership, tax liens, secured and unsecured notes, syndications, private REITs, private equity funds, and precious metals (to name a few).

In my view, therefore, banning self-directed IRAs from all nonpublic investments is both unwarranted and (hopefully) unlikely to succeed.

Nonetheless, a prudent investor should monitor the progress of IRA reform in Congress and factor the likelihood of changing regulations into his or her long term investing strategy.

Good luck to us all...