Peter Thiel Has Accumulated $5B in a Roth IRA
forbes.com
forbes.com
Also, if you think this should be changed, what should the law be, exactly? You're not allowed to make insane profits in a Roth IRA? Why? Or you're only allowed certain types of investments (like index funds?) in a Roth IRA? In my opinion (and it is an emotional judgement), I think America is based on freedom, and Roth money is money you already paid taxes on, and you should be allowed to invest it however you want. It's your money after all. And I say this as someone who literally only invests in boring index funds myself.
[1] https://www.theatlantic.com/politics/archive/2012/09/whats-r...
$6k/yr for 30 years at a very-high interest rate of 15% results in $31.3M .. so capping Roth-value at $50M will prevent extreme abuse. Though, I suspect many will argue for a lower cap
Buying assets that you know are being sold for below market value with you IRA is illegal. Thiel sold himself paypal stock for .1 cents per share after he had obtained funding that valued the company far above that. I'm not going to say what he did was illegal because that's for courts to decide, but it certainly seems like the IRS has a case.
However, if you can somehow get 1000x returns without breaking the rules then sure there isn’t a direct cap on how large Roth IRA’s can grow.
As far as I know, this hasn't changed; it was not permitted when he did it either. The argument is that all of the activity after this initial prohibited transaction would be impossible to unwind. The typically penalty for things like this is tainting the entire IRA, which just isn't practical at this magnitude.
Why not? If I mess up taxes in my IRA, not only do I have to pay them but I have to pay a penalty. But there's some amount over which it's just too big to figure out so we let it go?
But short of siezing all of his still-in-the-US assets, Thiel has $2B-worth-of-reasons to spend decades arguing this in court.
However, unwinding this stuff is straightforward. Take the total gains as a percentage from the prohibited transactions and divide the IRA value by that much, then adjust for any future investments in the IRA.
Think of all the obvious examples of utterly heinous behavior that were not illegal when they happened. Most of the very worst were not. Start with the bogeymen of evil.
As for tax dodging. FFS if you've got more money than your grandchildren can spend and you still want to not pay a contribution to the society that enabled that and protects it from just being taken from you? That's what makes you happy? Because it's happiness you're getting. You're way past toy money at that point, you can be as vapid as to buy more Bugattis and fly everwhere first class either way. You want to avoid tax for charity? Charity is tax deductable so that's BS on roller skates too. And I /hate/ sounding like an angry socialist because I'm not even close to being the latter.
Well you definitely sound like one when your first sentence is "this is such a garbage attitude". And no, I never said I would do anything, no matter how immoral, to avoid taxes? But you can carry on if you want.
But yeah, it does make me angry and I have a fair bit of sympathy for socialists of which I am definitely not one when they get angry about this kind of thing. Rather more than for tax dodgers claiming "it's not actually illegal so no moral judgement can be made." But that's not you despite what you wrote as you've now clarified.
> "Why on earth wouldn't you legally avoid tax if you could"
You evidently have answers to this question yourself as indeed we all should. Once there, there is plenty of room for discussion and debate.
We /are/ on the same page because now you've moved from ethics free argument to one involving your version of ethics. Plenty to discuss there, that barely scratches the surface and any deeper is likely a waste of time.
There is a huge difference between genuine libertarian belief an just being a "tax karen" with a pretence libertarian justification. The only thing they really want is not to pay. The latter have really messed up libertarianism and that's a pretty big loss. Including in our tax bills if we can't or choose not to avoid it all.
At the end of the day you’re kinda pontificating fundamental morality? Mine is (roughly) me and my family > friends, people I know. > people in general > animals. Now with that rough framework, obviously an individual not paying their share of taxes (it being a drop in the ocean) while everyone else pays, it makes sense to take advantage of a Roth loophole. But again, it’s a rough framework because there’s obviously an extreme contrived scenario where you wouldn’t be extremely terrible to a lower ranked group in the framework to benefit a higher group only slightly (e.g kill 1000 strangers to be 1% richer), but I don’t think a Roth loophole is it. I’ve actually been consistent about this if you literally read my comments, but you seem to think I’m not. I also don’t know why you care at this point, as we seem to be clashing on fundamental values. I’m speaking for myself, and also human nature generally. Trust me, if people could legally exploit a Roth loophole this way, most would.
All money is debt. For you to have money, someone had to get into debt. Either privately via bank loans, or the public via the government spending (most likely bank loans, only 4% is government spending).
It's not JUST your money. Your money is also someone's debt.
So when Thiel stashes 5 billion away in a Roth IRA instead of spending it, that's 5 billion of debt OTHERS owe. And that's 5 billion in INCOME he is depriving others. (of course he isn't actually holding billions of DOLLARS, but assets valued in dollars, so this isn't exactly the same thing).
Think of it like musical chairs. Thiel just took one of the chairs away (put it in the closet) and someone has to lose the game unless more chairs are added to the game.
In other words, Thiel's winnings ended up as someone else's losses. The game keeps going as long as someone keeps bringing chairs (the government, or bank loans) but as soon as that stops (2008 or covid), someone will lose, and it isn't Thiel. It will be millions of poor people who will lose their jobs, homes, etc.
So the question is, should people hoard debt (and deprive others of income) and gain that much power?
That's the question we as a society need to ask ourselves. And so far, judging from the comments here, everyone is ok with that.
But as I mentioned before, Thiel doesn't hold cash in the IRA, but assets valued in billions right? So in some sense he is only wealthy if there is a system that can convert those securities into cash. In other words, he is only wealthy as long as the system keeps going. But his efforts ultimately undermine that same system (wealth inequality undermines the system, this is a historic fact).
MacKenzie Scott Gave Away $6 Billion Last Year. It's Not As Easy As It Sounds
It helped increase net commerce on the internet. We also know that this increase in commerce contributes to climate change.
The reality is we can't escape the second law of thermodynamics. So whenever we do anything of 'value' we must necessarily produce waste.
To actually make the statement 'provided net value to society' you have to prove that the waste paypal produced was worth it.
Can you prove that?
We have a heatwave now in the PNW that is exasperated because of global warming. What if the waste we produced (in the form of CO2, and other heat trapping gasses which paypal most certainly increased) isn't worth it? What if we threaten our existence on this planet or organized human life?
So unless you did the math, it's just magical thinking that paypal produced net value.
Even without CO2, at the 2% annual growth target rate, the amount of energy humans would output as waste into the environment would literally boil the oceans in a couple hundred years.
If there is no growth, is capitalism still not a zero sum game?
Forget about the rest of what that user asked, I'm still curious if you can actually prove PayPal has had a net value to society writ large.
1. The chair Thiel "took" has been subsequently loaned out to other chair users. It wasn't taken away from the table. It isn't in a closet. It isn't in a giant cartoon swimming pool of chairs.
2. Thiel (and team) added net chairs to the larger musical chairs game. The count of new chairs is debatable but is not insignificant.
3. The chairs in Thiel's stash came from people willing to give him those chairs because they speculated they would get more chairs back down the road or at least not lose as many chairs as they would in other ways (like holding a chair as it shrinks due to inflation).
4. Society needs more chairs and specifically it needs people who have (a.) ideas and science to increase chairs, (b.) skills and knowledge to execute those ideas and (c.) leadership to guide and grow organizations to scale up the execution of those ideas. The emergent and evolving method society uses to develop consensus around and incentivize specific a, b, and c outcomes is the accounting of chairs.
This year society will account chairs worth $3.5B ($3,539,217,846) towards football. Do these 1,934 people add chairs or take away chairs from the table?
I often see people say this in a way that suggests one shouldn't criticize something if they don't have a viable alternative in mind. In point of fact, it's perfectly fine to feel that something might be wrong without knowing what the alternative should be.
We have a limit of $6000 CAD for TFSA (basically our version of the Roth here) across the board. And not a lot of Canadians make full use of this.
I'm not saying what he's doing is illegal, but the article suggests that he jammed in enough eBay shares @$0.30 that when it was $19 per share, worth about $31.5M USD.
So somehow he moved about 1.6M shares worth about half a mil?
A yearly contribution room regardless of income would at least stop someone from stuffing lots of shares in a short time into Roth. It probably has the unintended consequences of being regressive to those who don't have the cash flow at all to make use of the Roth IRA.
I'd go with a cap on the amount of returns that are tax free. Put after-tax money into a Roth, and you can take out the original investment plus up to some limit tax-free. Anything over that would be treated just like a regular IRA withdrawal.
> In my opinion (and it is an emotional judgement), I think America is based on freedom, and Roth money is money you already paid taxes on, and you should be allowed to invest it however you want. It's your money after all.
But you don't pay tax on the earnings of your Roth investments. That's the whole point of the Roth. Your investment choices are:
1. No IRA. You pay tax on your income, and when you invest after-tax money you pay tax on the investment earnings. You can withdraw investment money at any time.
2. Regular IRA. You can defer tax on some of your income and invest that money. You pay tax on the investment earnings and on the original income when you withdraw them from the IRA. You also pay a penalty if you withdraw money before age 59 1/2.
3. Roth IRA. You pay tax on your income, and when you invest after-tax money you do not pay taxes on the investment earnings. You also pay a penalty if you withdraw money before age 59 1/2.
Of all the US retirement schemes, Roth seems like the simplest promise. Put after tax money in, and we promise not to tax it on the way out. And we'll limit some obvious loopholes to abuse Roth investing (e.g. UBI).
The article makes it sound trivial to reliably and repeatedly catch lightning in a bottle like Paypal and Palantir did
Publicly traded companies are under the watchful eye of SEC, and have already proven to not be completely bogus.
Personally I prefer it this way. I want to assume that foods for sale won't poison me, investment products for sale aren't 100% scams, vehicles won't explode on me, etc.
Why? The money that goes into an IRA already has income taxes taken out.
I think the point is that the Roth IRA was used in the exact way it was designed and how anyone can use one.
If I use non-Roth funds to pay someone to a fix a window, I also lose tax-exempt status. Even if the Roth pays it back it's a loan. Thiel had already loaned $100,000 to PayPal.
Given that shortly after Theil's Roth's investment they closed funding with multimillion dollar valuations (instead of the tenth a cent a share he paid), I'm not sure that valuation really was a fair market value. Especially since they were priced as "founder's shares".
So how did Thiel not do something wrong with a retirement account legally required to be conducted at arms-length from him?
Whatever Thiel is like as a person, as a businessman he has been connected to the big things in the past two decades like no one else. Give the man a break.
Also, I love these hit pieces on Forbes and the other news sites, followed by a native advertisement. "F! the capitalist for making money, but really give us money"!
Is there a history of what trades he made and over what period? A $2k investment to $5B is insane.
Assuming the company goes public, the shares stay in the Roth. IANAL but I assume you lose Roth benefits and probably pay some penalties if the company gets sold for cash.
I mean, let's be real: the argument in defense of this is that Thiel bought his founders shares at "a fair value". There were 3 original founders, so the argument is that the company had a fair value of.... ~$5k?
> you put in a few thousand dollars worth of them each year before you valuation skyrockets
You can't transfer assets into an IRA like this either.
There is no magical automated system that is going to catch and flag a not-arms-length transaction, and I'm sure he (well, his legal team) is sitting around saying "well it's a shame this wasn't caught at the time, you know, statute of limitations and such".
It's less impressive that it could have been(!) because he took out some money (and paid taxes on it).