8 ms·

What seems most unfair here is how difficult dealing with private equity is as a normal person; the entire purpose of the Roth IRA is that you do not pay any ta

by ve55 5y ago

What seems most unfair here is how difficult dealing with private equity is as a normal person; the entire purpose of the Roth IRA is that you do not pay any taxes afterwards, and that is how it functions for everyone, whether you are rich or not. On the other hand, the same cannot be said about the ability to purchase, find, and work with private equity. I understand many publications may dislike certain people (as one can note from who they choose to mention the most), but I don't see a reason why he would decline using tax-advantaged accounts just because he has attained significantly larger wealth and roi than most others using them.

didibus 5y ago
I agree about access to private equity, but did you read the whole thing? He purchased shares of his own startup at 0.001 cents, way below market rate. To me, that's clearly not the intent of Roth IRA. This means any startup founder can simply put their ownership shares into their Roth IRA and never be taxed on their company growth. It also doesn't seem they singled out Thiel, he has the biggest Roth IRA they know off, seems logical to discuss him the most.
- deleted 5y ago
  [deleted]
- fastball 5y ago
  How is there a market rate if his startup was not publicly trading? The nominal value of the shares in my startup are £0.01. Sure, that's not what we've sold shares for, but the price we have sold them for was purely what the buyer was willing to pay for them.
  - GordonS 5y ago
    So, I was reading into this a bit recently after getting an equity offer (also in the UK). The "fair market value" is open to interpretation, but if the inland revenue come calling, you need to be able to explain it. For a startup with no assets that has not previously sold shares, £0.01. Is just fine. But if you've got assets, or you've previously sold shares as more than that, then quite clearly the market value is more than a penny. I mean, what better definition of "fair market value" is there than "what the buyer was willing to pay for them"?
  - FabHK 5y ago
    Funding rounds constitute a valuation.
- fny 5y ago
  > that's clearly not the intent of Roth IRA Would you say the same if someone used a Roth to buy Bitcoin when it was trading at pennies or Gamestop before it blew up? What's wrong with having the right to invest in your own company? That company pays corporate income taxes. You pay income tax as an employee. Also, everyone seems to forget Peter Thiel was part of the middle class when he did this...
  - DeRock 5y ago
    Thats not the right analogy. This would be more akin to selling your own bitcoins to yourself (into an IRA) for pennies on the dollar.
  - mullen 5y ago
    The Roth IRA is not suppose to be a tax shelter for people to get super rich off their own creations. You are not getting a reduced priced Bitcoins or Gamestop stock. You are gambling with your own funds based on information that everyone else has and paying the same price as anyone else. If you get Bitcoins and/or Gamestock at a reduced price, then you are abusing the Roth IRA and the IRS should stop and fine you.
    - lotsofpulp 5y ago
      Did that happen? Even ProPublica does not claim it.
      - medvezhenok 5y ago
        Would Thiel have been willing to sell his shares to someone else at $0.001 at the time he put them into the IRA? Because that's ultimately what market value is about. It's also one of the valuation proposals for people playing valuation games with illiquid assets. You can declare them at whatever value you want (and pay tax on that value), but you are forced to sell if someone offered you that value for the asset (if you claim your house is worth $1M, we'll let you pay property tax on $1M, but if someone offers you $1.1M for your house, you're forced to sell). That would cut down on people inflating/deflating asset valuations to game tax codes.
- ve55 5y ago
  I did, but I'm not sure I have enough information to conclude if what was done should be illegal/allowed or not, since this is based on various sections of leaked documents, but it's quite possible some bad things were involved. (One may remark that turning small investments into the many billions quickly clearly is a sign that foul play was involved, but recall that his original 10% stake in FB would be worth almost $100B today in less than 20 years. I do think he sold most of the stake long ago, though.)
- lotsofpulp 5y ago
  > He purchased shares of his own startup at 0.001 cents, way below market rate. Source?
  - garmaine 5y ago
    TFA. Although I think they’re wrong on this account. It doesn’t matter that the stock was worth more mere months later when the cashed their investment checks. But what is an issue is the self-dealing of buying shares in a company he holds a major role in the management of.
- caseysoftware 5y ago
  > He purchased shares of his own startup at 0.001 cents, way below market rate. The proper term is "fair market value" and before a company is publicly traded, the FMV is set by the Board and whatever investors have evaluated it and determined it to be. In this case, it looks like it was before any investors had put in their money so the Board was simply the founders. At that stage, the Board normally sets the strike price (what you get the shares for) the same as the fair market value (what they're "worth") and you pay taxes on the difference. Fractions of a cent are common at that stage. The risk is that the fair market value will never go higher and is likely to be zero (aka failed).
- deleted 5y ago
  [deleted]
- throwkeep 5y ago
  > He purchased shares of his own startup at 0.001 cents, way below market rate. How do you know that was below market rate? Startups generally begin with shares worth almost nothing.
- vmception 5y ago
  Why don't you think that was the intent of the Roth IRA, or more specifically within the intent. The intent of Roth products were to give money to a broke government up front. The government created Roth products for that specific reason and there is no further intent. They made the contract with the people and some of the people actually read it. All tax exempt and tax deferred products can invest in and hold whatever they like with prohibitions generally being on level of control or debt financing. Simply having a prohibition on some kind of property ownership doesn't make sense and I would probably challenge it on constitutional grounds.
- technotony 5y ago
  Their claim that the shares were below market value doesn't stack up. They did this when they founded the company, the company has no value at formation so it's fair priced. Just because they raised money a few months later doesn't mean it was worth anything at formation.
  - bklyn11201 5y ago
    If you have knowledge that people want to inject money into your startup (and thus raising the value), then stuffing shares into a Roth IRA before a raise (that you know will happen) would surely be skirting the idea of fair-market value.
  - FabHK 5y ago
    That very same year, there were two or three funding rounds, according to the article, for $0.5m and $4.5m. Yet at the end of the year, the shares in the Roth were reported to be worth less than the initial $1700.
- deleted 5y ago
  [deleted]
xkjkls 5y ago
Also, if you aren't trading public stocks, it seems much easier to get around size limitations. When you spend $5500 buying the SPY, the government is incredibly certain that is the amount of money your investment was valued at. If you buy $5500 of stock in a startup? Who is to say? The opportunity to buy that stock might have been worth 10x that amount the moment that transaction occured, and there's no real way for the government to actually determine that.
nielsbot 5y ago
I don't think it's a dislike of certain people or blaming them for doing these (legal) investment moves. It's about changing the rules to provide more financial equality in our society. I think it's now too easy for the rich to get richer and too hard for the poor to come up. I'm not suggesting banning rich people, and we can debate over matter of degree of equality that's good. (edit: typo)
- ve55 5y ago
  Generally agree; I mention it since from my point of view, I would have spent most of the article criticizing the rules and policies politically and finding ways to improve them, rather than constantly going on about the personal lives of some that have exploited them (although it does seem like it cannot be helped sometimes).

by ve55 5y ago

didibus 5y ago

I agree about access to private equity, but did you read the whole thing? He purchased shares of his own startup at 0.001 cents, way below market rate. To me, that's clearly not the intent of Roth IRA. This means any startup founder can simply put their ownership shares into their Roth IRA and never be taxed on their company growth. It also doesn't seem they singled out Thiel, he has the biggest Roth IRA they know off, seems logical to discuss him the most.

deleted 5y ago
[deleted]
fastball 5y ago
How is there a market rate if his startup was not publicly trading? The nominal value of the shares in my startup are £0.01. Sure, that's not what we've sold shares for, but the price we have sold them for was purely what the buyer was willing to pay for them.
- GordonS 5y ago
  So, I was reading into this a bit recently after getting an equity offer (also in the UK). The "fair market value" is open to interpretation, but if the inland revenue come calling, you need to be able to explain it. For a startup with no assets that has not previously sold shares, £0.01. Is just fine. But if you've got assets, or you've previously sold shares as more than that, then quite clearly the market value is more than a penny. I mean, what better definition of "fair market value" is there than "what the buyer was willing to pay for them"?
- FabHK 5y ago
  Funding rounds constitute a valuation.
fny 5y ago
> that's clearly not the intent of Roth IRA Would you say the same if someone used a Roth to buy Bitcoin when it was trading at pennies or Gamestop before it blew up? What's wrong with having the right to invest in your own company? That company pays corporate income taxes. You pay income tax as an employee. Also, everyone seems to forget Peter Thiel was part of the middle class when he did this...
- DeRock 5y ago
  Thats not the right analogy. This would be more akin to selling your own bitcoins to yourself (into an IRA) for pennies on the dollar.
- mullen 5y ago
  The Roth IRA is not suppose to be a tax shelter for people to get super rich off their own creations. You are not getting a reduced priced Bitcoins or Gamestop stock. You are gambling with your own funds based on information that everyone else has and paying the same price as anyone else. If you get Bitcoins and/or Gamestock at a reduced price, then you are abusing the Roth IRA and the IRS should stop and fine you.
  - lotsofpulp 5y ago
    Did that happen? Even ProPublica does not claim it.
    - medvezhenok 5y ago
      Would Thiel have been willing to sell his shares to someone else at $0.001 at the time he put them into the IRA? Because that's ultimately what market value is about. It's also one of the valuation proposals for people playing valuation games with illiquid assets. You can declare them at whatever value you want (and pay tax on that value), but you are forced to sell if someone offered you that value for the asset (if you claim your house is worth $1M, we'll let you pay property tax on $1M, but if someone offers you $1.1M for your house, you're forced to sell). That would cut down on people inflating/deflating asset valuations to game tax codes.
ve55 5y ago
I did, but I'm not sure I have enough information to conclude if what was done should be illegal/allowed or not, since this is based on various sections of leaked documents, but it's quite possible some bad things were involved. (One may remark that turning small investments into the many billions quickly clearly is a sign that foul play was involved, but recall that his original 10% stake in FB would be worth almost $100B today in less than 20 years. I do think he sold most of the stake long ago, though.)
lotsofpulp 5y ago
> He purchased shares of his own startup at 0.001 cents, way below market rate. Source?
- garmaine 5y ago
  TFA. Although I think they’re wrong on this account. It doesn’t matter that the stock was worth more mere months later when the cashed their investment checks. But what is an issue is the self-dealing of buying shares in a company he holds a major role in the management of.
caseysoftware 5y ago
> He purchased shares of his own startup at 0.001 cents, way below market rate. The proper term is "fair market value" and before a company is publicly traded, the FMV is set by the Board and whatever investors have evaluated it and determined it to be. In this case, it looks like it was before any investors had put in their money so the Board was simply the founders. At that stage, the Board normally sets the strike price (what you get the shares for) the same as the fair market value (what they're "worth") and you pay taxes on the difference. Fractions of a cent are common at that stage. The risk is that the fair market value will never go higher and is likely to be zero (aka failed).
deleted 5y ago
[deleted]
throwkeep 5y ago
> He purchased shares of his own startup at 0.001 cents, way below market rate. How do you know that was below market rate? Startups generally begin with shares worth almost nothing.
vmception 5y ago
Why don't you think that was the intent of the Roth IRA, or more specifically within the intent. The intent of Roth products were to give money to a broke government up front. The government created Roth products for that specific reason and there is no further intent. They made the contract with the people and some of the people actually read it. All tax exempt and tax deferred products can invest in and hold whatever they like with prohibitions generally being on level of control or debt financing. Simply having a prohibition on some kind of property ownership doesn't make sense and I would probably challenge it on constitutional grounds.
technotony 5y ago
Their claim that the shares were below market value doesn't stack up. They did this when they founded the company, the company has no value at formation so it's fair priced. Just because they raised money a few months later doesn't mean it was worth anything at formation.
- bklyn11201 5y ago
  If you have knowledge that people want to inject money into your startup (and thus raising the value), then stuffing shares into a Roth IRA before a raise (that you know will happen) would surely be skirting the idea of fair-market value.
- FabHK 5y ago
  That very same year, there were two or three funding rounds, according to the article, for $0.5m and $4.5m. Yet at the end of the year, the shares in the Roth were reported to be worth less than the initial $1700.
deleted 5y ago
[deleted]

xkjkls 5y ago

Also, if you aren't trading public stocks, it seems much easier to get around size limitations. When you spend $5500 buying the SPY, the government is incredibly certain that is the amount of money your investment was valued at. If you buy $5500 of stock in a startup? Who is to say? The opportunity to buy that stock might have been worth 10x that amount the moment that transaction occured, and there's no real way for the government to actually determine that.

nielsbot 5y ago

I don't think it's a dislike of certain people or blaming them for doing these (legal) investment moves. It's about changing the rules to provide more financial equality in our society. I think it's now too easy for the rich to get richer and too hard for the poor to come up. I'm not suggesting banning rich people, and we can debate over matter of degree of equality that's good. (edit: typo)

ve55 5y ago
Generally agree; I mention it since from my point of view, I would have spent most of the article criticizing the rules and policies politically and finding ways to improve them, rather than constantly going on about the personal lives of some that have exploited them (although it does seem like it cannot be helped sometimes).