He didn't just invest normally.
That's a fairly unique situation. I certainly can't use an IRA to buy my company at a strike price, knowing I'll be selling or raising capital to increase its value.
> Using stock deals unavailable to most people, Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall.
It's certainly not a "yolo do whatever you want, the IRS won't care" fund but it is still available to the non-wealthy. I know many people who have been making use of it for years without any unfair government characterization or attention. The best I've personally seen is a couple in their early 30s with ~$7 million (real estate related dealings) in their self-directed roth which is a far cry from $5 billion, obviously, but pretty amazing nonetheless.
So no, you're not going to get those kind of gains with real estate. It relies on early stage startups being notoriously hard to value, plus the wealth/connections to make for surefire exits. And if you tried to replicate it at an individual or even familial level, especially repeatedly, those early valuations are going to end up getting challenged. So sure, the same laws apply to everybody and anybody can set up a self-directed IRA. But not everybody can predictably and sustainably achieve such outsized gains with them.
The very fact that you're having to be "mindful" of self-dealing shows that people like Thiel are self-dealing, just with more layers of indirection.
If it wasn't self-dealing, you'd not need to be mindful of such regulation.
What do you mean "the power to value stock low"? The IRS rules require a fair market value. There is no way around this.
What actually happened was that this was an early investment round, where the company had little to no value, so the stock was assigned a nominal value of something like $0.00001/share, which happens with pretty much every startup when it first issues equity.
And what does "then push it through the roof to get all the tax free profits"? You mean grow a successful business? You just need to "push it through"?
The IRS isn't stupid. You can't do your own valuation - well you can, but they'll reject it.
Generally you'd hire at outside firm to do a valuation. If the IRS doesn't believe it, they'll come up with their own number and make you pay the taxes they think you owe.
Thiel basically made a bet - early investor when the company made $0, hence the value of the shares was effectively zero. His investment was in the thousands of dollars. He just got lucky that it had a huge pay out.
I absolutely can not understand how people are even defending massive loopholes or oversights in tax code that allow some billionaires to effectively pay a tiny fraction of ordinary income tax...
So. That's how they think about it.
He _may_ have engaged in insider trading or something, in order to make so much money in the Roth. That should be protected, but is really not related to the fact that he used a Roth.
They missed that a Roth IRA needs to be a self-directed IRA to invest as Thiel does, most people don't know this and invest in ETFs or mutual funds giving meager returns. And, you need to have a high net worth to invest in private stock, especially in the formation, pre-IPO, stages of a company, and a high net worth reputation to have venture capital credibility.
Also, the main reason that Roth IRAs passed in Congress is that greedy politicians, on both sides of the aisle, want that tax money upfront instead of waiting decades to collect.
There should never be an argument that the government is some steward of our money and that the insane amount of money they collect from us is somehow wisely spent as our fiduciary.
AFAIK, that's perfectly legal.
"Pretty much anyone in the US" doesn't have the ability to set the value of stocks they are about to buy.