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> The firm initially terminated its 401(k) plan for employees in 2010, a step that permitted them to roll the savings into traditional IRAs. Then, employees too
by gammateam 8y ago
> The firm initially terminated its 401(k) plan for employees in 2010, a step that permitted them to roll the savings into traditional IRAs. Then, employees took advantage of a rule change that year allowing affluent Americans to convert their traditional IRAs into Roths. The following year, Renaissance applied for clearance from the U.S. Labor Department for employees to invest the accounts in Medallion, which the agency granted and made effective in January 2012.
This is entirely convoluted. A Roth 401K would have achieved the same thing, 10X higher annual contribution limits, and allows cheap liquidity from borrowing 50% of it at 2 points above fed funds rate. The conversion opportunity was nice but has very little to do with what has happened since 2010 for anyone that invested later.
Many Reg D offerings also allow for 25-30% of the fund to be held by tax-deferred accounts. US Department of Labor wasn't necessary here.
> In turn, the IRA money -- held by about 250 employees -- grew to more than 4 percent of Medallion’s gross assets from about 1 percent five years earlier.
So what's the US Department of Labor for again? I'm missing something..... this must come down to the fund's structure. In any case it is nice they pulled it off.
My approach to letting 401K/IRA/Tax-Deferred accounts make a ton of money is to give them a separate share class. That share class gets some outside attention and liquidity preferences sometimes. It was inspired by Bain Capital's approach, when that was in the news during Romney's presidential run and it became 'controversial' regarding how they circumvented tax liability. I didn't confirm thats what Bain Capital actually did but thats what I came up with and its passed.
- JumpCrisscross 8y ago> The conversion opportunity was nice but has very little to do with what has happened You can’t invest in a Roth account if you earn more than a fairly low level. You can, however, convert IRA assets into Roth assets at any income level provided you pay the tax on conversion. Disclaimer: I am not a CPA. This is not tax advice.
- Thorrez 8y agoThere's no income limit on Roth 401ks as far as I know, where did you hear that there is one? >You can, however, convert IRA assets into Roth assets at any income level provided you pay the tax on conversion. You seem to be saying you can convert traditional IRA money into a Roth IRA. That's true, but how do you get traditional IRA money? There's an income limit when you make traditional IRA contributions if your employer has a 401k: https://www.irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work https://www.irs.gov/retirement-plans/2019-ira-deduction-limi...
- laurencerowe 8y agoThat's a tax deduction limit not an IRA contribution limit. You make an after-tax IRA contribution (up to the IRA contribution limit of $6K/year in 2019) not subject to any income limit and then convert to Roth IRA.
- Thorrez 8y agoYeah, but that's not really "traditional". And if done fast enough, the "tax on conversion" will be essentially nothing.
- infinite8s 8y agoIf your firm's 401k plan allows it, you can contribute up to 32k post tax (it's not deductible) and then immediately roll over to a Roth 401k (google for "mega-backdoor Roth"). People don't realize that the IRA and 401k sections of the tax code are completely different, and they both have Roth sections, and the limits in one don't apply to the other.