Hacker News Reader

Comment by boogoob | Hacker News Reader

Presumably meant to address high net worth individuals completely dodging taxation on huge gains by using their IRAs for investments like exercising early-stage stock options.[1]

I kind of wish they'd go with just capping the gains, but would I still say that if I wasn't planning to use mine to "fund" high-return cryptocurrency arbitrages?

1) https://www.forbes.com/sites/sarahhansen/2021/06/24/peter-th...

View on HN

That may be the case but they are casting a very wide net. The numbers I've seen say there are on the order of 100k-1MM self directed IRA accounts that exist. Approximately 0% of which are lucky enough to be Peter Thiel and invest in founders stock of Paypal.

Oh actually, if you go and read the bill text they link, there is in fact a cap at $10m along with other measures to close up loopholes. Starting at section 138301.

https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax...

Assume this is meant to capture the Mitt Romney scenario.

https://www.theatlantic.com/politics/archive/2012/09/whats-r...

More recently, ProPublica showed that Peter Thiel (and others) did the same thing. Thiel amassed $5 Billion into an IRA that's nominally capped at $6k/year in contributions.

https://www.propublica.org/article/lord-of-the-roths-how-tec...

Did he use the mega-backdoor contribution thing, or did he grow it from a tiny amount?

He invested the entire amount ($1700 at the time, iirc) into his new startup before they'd raised any money: Paypal.

Then used the proceeds from that to invest in variety of things, including an early (angel?) investment in Facebook.

It's all detailed in the Propublica story where they described his Paypal investment as a "sweetheart deal".

There's a huge survivorship bias with this. He put his IRA on 00 and it hit, but most of the time, it won't, and most people wouldn't take that bet. This is a lot of effort to solve a non-problem that got press coverage.

It seems strange to describe it as a "non problem" when he's successfully evaded something like a billion dollars in taxes. Romney did the same. Certainly many others have as well.

Thiel bought his shares at $0.001/share in the same round where the company was valued at $0.20/share. At very least, he should've been capped at 10,000 shares in the IRA but instead he contributed 1.7 million ($2k/year IRA contribution limit at the time).

It's like describing a software bug as a non problem since it only lead to two intrusions.. that you know of.. that cost your company a ton of money.

> Thiel bought his shares at $0.001/share in the same round where the company was valued at $0.20/share.

The strike price and the "fair market value" are often different so there's nothing exceptional or even unique there. Odds are, half the people reading this thread have had the same situation in their careers. The difference is that this company (Paypal) ended up working so those shares became valuable.

If you or I did it, we'd pay the strike price, it'd be reported to the IRS at the FMV, and we'd pay the tax on the difference. In this case, it would be some percent (22? 25?) of 1.7M*(0.20-0.001) or ~$338k.

Of course, from there you get into the "unrealized gains" battle that screws over people with illiquid shares.

Romney's was in a regular IRA. He delayed taxes. Withdrawals are taxable as regular income. If he was really smart, he would have done it outside his IRA and paid the taxes on the lower capital gains rate.

Peter Thiel has a $5 billion Roth IRA

I'm actually pretty fiscally conservative but I think it's ridiculous that someone abused the intent of a Roth IRA by accumulating $5 billion into it.

The whole purpose of IRAs is to encourage regular people to save for retirement. It was not meant to provide billionaires tax loopholes to avoid paying millions or even billions of dollars in taxes.

It's kind of like playing a game with someone. 99% of the people are following the rules and then some weisenheimer comes up with an idea that while technically not breaking a rule goes against the spirit of everything that the game stands for. What happens in that instance is the other players of the game will say, "Nice try, but no." This is what Congress is doing.

Making a lucky investment is “abusing the intent”?

$5B is more than the GDP of several dozen countries. I dont think that was the intent of the law.

Sure, but there was nothing in the law that said “this tax advantaged account is only for return of less than 10,000%”

It wasn't luck. He sold himself assets at below market value to launder them into his IRA under the contribution limit.

Wait, you’re accusing Thiel of money laundering?

I do not believe this behavior meets the definition of criminal money laundering, if that's what you're asking.

yes

I think you should be able to invest in your IRA however you like, but there really should have been a limit on how much is tax advantaged. Or perhaps just a limit in terms of how large disbursements can be while still being tax advantaged?

Congress is preventing all people from investing in private companies within retirement accounts, not just rich people. Adding the cap is fine but preventing private company investment is asinine.

Preventing all people from investing in private companies or closing a loophole that the law was never intended to allow?

Because anyone can continue to invest in private companies. You just can’t get tax free growth from them.

Ignoring rather or not you should be able to use an IRA to invest in private companies for a moment:

>anyone can continue to invest in private companies.

is a very bold claim.

I meant to imply within retirement accounts. But the intention of retirement accounts is to get you to save for retirement through investments. Private companies are arguably the most effective way to grow wealth. Congress is saying they don't want you doing this they only want you to have access to stocks and bonds because private investments do to well.

What I like about Congress - is instead of saying "this provision can allow you to do well for retirement by investing in private companies self directed with an IRA and you might not need social security". Instead they act: "we're not rich, we're mad at the few who are - so instead of teaching you how to do this, we're going to make it illegal"

> we're not rich

Yes they are.

To them they're not rich because Bezos has more money than them. "Taxing the rich" is normally defined as tax the people who make more than me

A few are... of course. Most senators could be above average - but they aren't Romney, Thiel, Powell rich. This is jealousy wrapped in political motive.

More like: “we’re paid very well to represent the interests of the elite. The elite don’t like upstarts trying to join them via wealth accumulation so we design a tax code that makes accumulating significant wealth via working and saving impossible.”

This.

Both statements are false.

Reply on news.ycombinator.com