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I think you're missing the thrust of ProPublica's reporting. This is not an article claiming that laws have been broken. It is pointing out the difference in in

I think you're missing the thrust of ProPublica's reporting. This is not an article claiming that laws have been broken. It is pointing out the difference in intent and reality for a part of our financial law. It is not that Thiel is getting huge windfalls from this account now (he is a billionaire, he does not need them), it's that this is another example of a billionaire getting abnormally large absolute benefits from a financial instrument. The message is not that Thiel has committed some crime, but that he has cleverly and successfully used an instrument designed for the 'middle class' to shelter billions in earnings. The implication is that we should reform these tax vehicles so that the ultra-wealthy cannot use them - not that Thiel is cheating the system as it exists. The lines which talk about contribution limits to Roths are to emphasize that this was not intended to shelter this kind of wealth. > This is someone who used the law exactly as intended I 100% agree Thiel has broken no crime and I think you should be *embarrassed* to say that the people who created the Roth intended this. There is no evidence of that. We should recognize that this Roth IRA is sheltering more money than people expected and make (or refrain from making) regulatory changes in response.

marris 5y ago
If they intended something else, then why didn't they write the rules to reflect "else"? The truth is that they didn't think that any Roth IRA investor would be as successful as Thiel. He showed that he can be. Good for him.
- TaylorAlexander 5y ago
  The law is an evolving code as we discover new scenarios. This reporting is exploring one of those unexpected scenarios so we can understand the need to change the law.
  - lefrenchy 5y ago
    Not to mention that rich people can pay the smartest legal scholars and financial gurus to find workarounds and engineer ways to make more money.
- aeturnum 5y ago
  > If they intended something else, then why didn't they write the rules to reflect "else"? If the web server didn't intend to allow a buffer overflow on POST requests, why did it improperly allocate memory? I agree with you that we have a choice: should this be allowed? If not, how do we transition? If yes, do we want to place any limits on it in the future?
  - beaner 5y ago
    Why wouldn't it be allowed? If my investments into my Roth IRA performed so we'll i became a billionaire, I wouldn't want to be treated differently. And I wouldn't want my mom or my neighbor to either. They essentially got lucky, they're not taking anything from me in being so fortunate. The "problem" in this case is that Thiel was already a billionaire to begin with, and such luck on top of existing wealth is what irrationally bothers people.
    - aeturnum 5y ago
      We have a progressive tax system, which generally taxes higher incomes at greater rates. Maybe we do want the Roth to be an unlimited shelter, but that has generally not been the approach we have taken. > The "problem" in this case is that Thiel was already a billionaire to begin with, and such luck on top of existing wealth is what irrationally bothers people. This isn't how I feel and I don't actually think that is the case ProPublica is making. Tax breaks can also be understood as payments - is it in the interest of the US to pay Thiel to put his money in a Roth? How much should the US pay? How many of your tax dollars would you want to go to funding tax breaks for Thiel? I am sure people are vindictive as well, but the tax questions seem both meaningful and work asking to me.
      - marris 5y ago
        > Is it in the interest of the US to pay Thiel to put his money in a Roth? How much should the US pay? How many of your tax dollars would you want to go to funding tax breaks for Thiel? I submit that yes, it is in the interest of the US to do this, provided that Thiel is creating value for the US (and to some extent the world) with that money. $5B is approximately one day of US government spending (maybe less now). Letting Thiel invest $5B may not be the best investment decision that the USG has ever made (e.g. Internet funding, Telsa support), but it is way higher than the mean decision.
- jychang 5y ago
  Are you seriously trying to say that lawmakers can't write buggy code with edge cases they didn't consider?
  - marris 5y ago
    Sure they can. Here, I think some lawmakers probably thought (a) "if someone can use this tool that well, then more power to him", or (b) I don't like it, but it is so unlikely, and I can probably live with it. I don't think it was a scenario of someone failing to "consider the case."
jupp0r 5y ago
I think you are missing the point of GP. There is nothing billionaire specific about what Thiel did. You could have done the same with the same Roth contributions. If the law is changed it will not only limit Peter Thiel from doing this but also you and me.
- deleted 5y ago
  [deleted]
- ska 5y ago
  > If the law is changed it will not only limit Peter Thiel from doing this but also you and me. That obviously not necessarily true. One can imagine a change in law that limits tax sheltering of this type for any individual to say, 10mm. A tiny fraction of the population would be affected.
  - tablespoon 5y ago
    > That obviously not necessarily true. One can imagine a change in law that limits tax sheltering of this type for any individual to say, 10mm. A tiny fraction of the population would be affected. Or limit the types of assets that can be held in an IRA to those that are publicly traded and can be bought on the open market. It seems like an important part of this scheme was Thiel basically got to set the price of some shares he sold himself, because they weren't publicly traded at the time.
    - s1artibartfast 5y ago
      Then you are limiting what people can do with their money 2 inflating stock prices of giant companies. What if I want to invest in a friend's business or buy a rental property. Are you saying it should be illegal for me to do that with my IRA?
      - tablespoon 5y ago
        > Then you are limiting what people can do with their money 2 inflating stock prices of giant companies. So? It's what 99.999% of them do anyway. > What if I want to invest in a friend's business or buy a rental property. Are you saying it should be illegal for me to do that with my IRA? Yes.
peytoncasper 5y ago
What is your limit on how much money should be "sheltered" by a Roth IRA? At the time Thiel was not an ultra-wealthy billionaire. From the article. “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson The Roth IRA is intended to be a retirement vehicle for people to make contributions too with the intention of it not being touched till after retirement. As a perk, it is not taxed. Maybe its not within the "spirit" of the law, but I hardly see how trying to create incredibly granular restrictions on start up founders or people that believe they have a better investing strategy is the right approach. What about making it easier for normal people to have access to the same IPOs that Thiel had access to?
- sp332 5y ago
  And Roth IRAs are funded post-tax. That means he paid taxes on the income already, before he put the money into the IRA. That's why it's "tax-free".
  - peytoncasper 5y ago
    I think that's fair, although, and correct me if I am wrong. Its his current income tax, so it's highly likely that his income tax bracket is lower than the cap gains tax that would normally be applied on investments like this. That being said, I tend to agree. Its to prevent double tax in which you're trying to promote a better investment. Your long term health and retirement.
    - pontifk8r 5y ago
      I'm correcting you: Unless he makes less than $40,000 in salary, the capital gains tax rates are going to be lower than the tax rate for ordinary income. The chart in this article reveals more: https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp https://www.investopedia.com/articles/personal-finance/10151...
  - colordrops 5y ago
    Are you suggesting any investment that is made after you've paid taxes on it should be tax free regardless of growth? Roth is an exception, not the rule. Tax is cyclical, not a one time thing, by design. It was never the case that you only ever paid tax once, and it's confusing to me that it's even being suggested otherwise. Roth is a very special exception to this.
lend000 5y ago
> successfully used an instrument designed for the 'middle class' to shelter billions in earnings A Roth IRA is beneficial if positions are being changed (taxable events), because those taxes are deferred. For very long term holding, the benefit caps out at 20% in exchange for tying up the assets for decades. He will eventually benefit, if the company is still valuable when he comes of retirement age, by avoiding the single long term capital gains hit he would otherwise pay. It'll be more of a story, then, if the stock is near an all time high value, but frankly, this is not a scalable investment strategy for the wealthy sheltering their wealth (which would be a more interesting story). This only worked because he has been an exceptionally prescient investor. This wouldn't be a good strategy for every startup founder, because even if the startup was mega-successful, the founders would not be rich until retirement.
- birken 5y ago
  He has been constantly changing his positions and using the proceeds to invest in other companies. The benefit isn't one time, it is compounding over time, because he gets to keep investing the 20% of extra money he would have had to pay in capital gains, over and over again, as he shifts his money between investments. It would pay off anyways even if he did have to pay 20% when he eventually withdraws, but the fact that he gets it all tax-free makes it pay off massively. He also doesn't have to keep all of his wealth in this Roth IRA, just a percentage. And it clearly is a scalable strategy because lots of people are doing it.
  - trident1000 5y ago
    The government taxes people a combined 55% (state, local, fed, ACA) short term capital gains rate (in some states combined with the 40% federal). Fuck em. Im glad he figured out a loop hole.
- gnopgnip 5y ago
  Nothing is deferred with a Roth IRA. There are no taxes owed on distributions.
- erik998 5y ago
golemotron 5y ago
> This is not an article claiming that laws have been broken. It is pointing out the difference in intent and reality for a part of our financial law. There's always a difference between intent and reality. A hammer can be used for many things other than hitting nails.
pbreit 5y ago
"exactly as intended" I would say it's exactly the opposite of intended. ROTH IRAs were never intended for professional investors to avoid taxes.
- choppaface 5y ago
  Perhaps disqualify accredited investors from ROTHs? Or make it convert if the holder makes so much $$ they become an accredited investor. Or if the individual has paid AMT or less than 20% average tax through age 59.5 then tax all withdraws as ordinary income.
  - kybernetikos 5y ago
    I believe that in some countries the equivalent to a Roth is limited to exchange traded companies and relatively low risk funds and bonds. If the intention is for normal people to save for retirement this makes sense to me.
- Lazare 5y ago
  I mean...it was intended for everyone to use, and the intended use was to avoid taxes (in this one, very limited context). And professional investors are part of "everyone". So...I mean....it really is the intended use.
  - scep12 5y ago
    The intention was not to create tax shelters for the ultra-wealthy. Hence the income limits. Thiel used a loophole to grow his wealth using the Roth as the vehicle.
    - parineum 5y ago
      Is the loophole investing well?
    - colordrops 5y ago
      It was at least not a public intention, but I know more than one multi millionaire that has used this "loophole". Peter thiel isn't some super rare exception
efitz 5y ago
The problem is not Peter Thiel. it's not rich people. It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. Rich people have the resources to hire CPAs to dig through tens of thousands of pages of tax law and create strategies to use the law to their advantage. If the law were simple, there would be no way to do this kind of gamesmanship. Personally, I think that we should ditch the entire tax code, set a flat income tax rate - a single rate that applies to everyone and every kind of income - and a standard deduction of say, 1.5x - 2x of whatever "poverty level" income is. Such a system is triple-progressive: first, high income earners pay more because x% of a lot of income is a lot bigger than x% of a little income. It's progressive in that poor people pay nothing due to the standard deduction, and middle income earners pay a pittance for the same reason. And it's progressive in that it eliminates all loopholes so there's no way for high earners to game it. But it only works if you eliminate all deductions and special income treatments including the sacred cows (mortgage deduction and capital gains). Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification. And, Congress would f** it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. Sigh.
- bronzeage 5y ago
  The billionaires don't get regular income, they get asset appreciation of the corporations they own. You need both higher capital income tax in a progressive way, and an incentive to sell. Borrowing against this assets for anything should be illegal until you have paid income taxes on them.
- iammisc 5y ago
  Yup. This is why I encourage everyone to do their own taxes. It would help people see how stupid it is. So complicated for no reason .
- rtpg 5y ago
  You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. The most prescient thing I saw about the Panama Papers leaks was that the biggest reason so few americans were present in those is that America is basically already a tax haven for rich people. A flat income tax rate is not progressive by the usual definition, even with a flat deduction (imagine trying to scale _that_ to inflation and the endless debates). And we already have a solution for what you propose: gradual increase in the tax rate based on income levels! It has the added advantage of actually handling inflation (since the dollar amounts will go up over time anyways), and don't require a single "big tax number". If you believe what you say, just argue to remove various deductions and exceptions. We already have percentage-based tax system, there's no need to be that much cleverer.
choppaface 5y ago
And Thiel is not alone. Max Levchin also dodged taxes by putting his early investments in an IRA. If the act is not an official tax dodge, then it’s a breach of fiduciary for a large investor like Max or Theil AND the company to fail to disclose the IRA lock-up. For Max or the company to show the cap table or advertise the investment on a roadshow yet fail to communicate the illiquidity of the holding— that’s materially misleading.
- kenneth 5y ago
  You misunderstand it. The holding is not illiquid. It's fully liquid, it's just that Peter and Max's access to the cash proceeds aren't. If someone buys the shares in the Roth, their position is fully liquid: they can sell the next day and use the cash for anything. And the sellers can take the cash and use it for anything that looks like an investment. Like, invest it into another company, or into real estate (like a mansion or yatch)
- pkghost 5y ago
  That's wrong. Holding something in an IRA doesn't prevent you from selling it, only from taking the proceeds and putting them in your personal checking. The proceeds continue to be property of the IRA/401k, and can be re-invested elsewhere, without incurring a taxable event. You can day-trade in your self-directed 401k or IRA until you're broke or Thiel-level rich, and the IRS will never get involved. I mostly agree with the top-level comment, here; ProPublica is losing a lot of credibility for their mildly misleading and black-and-white framing of these tax issues, and I'm someone who genuinely believes that wealth inequality is a problem that can and should be addressed by the state.
  - kyleee 5y ago
    Can one hold and trade crypto in such a vehicle?
    - dlp211 5y ago
      Theoretically, yes. You'd have to use a self-directed IRA, but it can be done.
rsync 5y ago
"I think you're missing the thrust of ProPublica's reporting. This is not an article claiming that laws have been broken. It is pointing out the difference in intent and reality for a part of our financial law." If that is what it is trying to point out then it is failing. This is the intent of a Roth IRA. This is not an accidental feature or a weird corner-case or an unintended consequence. One cannot borrow against a Roth IRA and one cannot withdraw from it without paying taxes. AFAICT there is nothing interesting here other than the dollar value. "... and I think you should be embarrassed to say that the people who created the Roth intended this." I am not your comment-parent but I think they should neither be embarrassed nor not-embarrassed. Are you embarrassed that Billionaires can deduct mortgage interest on their primary residence ? Are you embarrassed that Apple Computer can write off business lunches ?
- lmm 5y ago
  > Are you embarrassed that Billionaires can deduct mortgage interest on their primary residence ? I was embarrassed to live in a country that had that law, yes (I don't any more). It's a real indictment of a political system that would allow such a thing.
  - prepend 5y ago
    If you’re embarrassed that corporations with billions and trillions can expense expenses then the problem may be you. A political system that has different expense rules for different company sizes sounds like a nightmare of dipshits trying to micro issues. Set the rules that are fair on first principles, make sure taxes are proportionate, stick with that.
    - lmm 5y ago
      Rules that are fair on first principles are exactly what I want. The mortgage interest tax deduction is nothing of the sort; it's a grotesque carve-out that distorts the tax system for the sole purpose of transferring common wealth to the people who least need it. It's just obscene.
smsm42 5y ago
There's all the evidence it's exactly what Roth IRA is for in its very design. If whoever designed it meant it to have caps - they would make it have caps. They know how to do caps - they did caps on contribution, they did caps on income for being allowed to contribute (which btw is super low). They didn't put caps on the account size because they didn't intend to have them, not because everybody who designed it suddenly had a stroke and forgot caps are possible.
studentrob 5y ago
> I 100% agree Thiel has broken no crime and I think you should be embarrassed to say that the people who created the Roth intended this. There is no evidence of that. We should recognize that this Roth IRA is sheltering more money than people expected and make (or refrain from making) regulatory changes in response. I remember when I was young and maxed out my Roth, also converted a lot into it, and a tax accountant warned me that the government could change the rules so the gains are taxed. I thought, "no way, they couldn't do that!" Now I see they very well could as a response to arguments such as yours. I can't say I'm a fan of Thiel's business or writings however many of us rely on Roth remaining as-is. It already has limits. Thiel simply made good investments. We shouldn't punish that unless there was something like insider trading occurring. And that should not impact the existence of the Roth.
- maroonblazer 5y ago
  > Now I see they very well could as a response to arguments such as yours. I think the parent is arguing that a Roth should be limited to some reasonable ceiling, e.g. $1M, $5M, etc.
  - studentrob 5y ago
    You would disincentivize good investments and reduce GDP as a result.
  - caddemon 5y ago
    You can only put earned income into a Roth, you can only put up to 6K per year, and you are only eligible to put anything at all for a given year if your total earned income was below a fairly modest threshold. Roth IRA already has plenty of restrictions. The fact that one man happened to be some combo of smart/lucky to make the modest initial investment turn into billions is definitely not an indication of whether the Roth is problematic. I think the parent may be confused about the exact details of a Roth.
    - studentrob 5y ago
      You can rollover to get around contribution limits [1], and the government gets your money now rather than later, > A Roth IRA rollover (or conversion) shifts money from a traditional IRA or 401(k) into a Roth. You can get around Roth IRA income limits by doing a rollover. You'll owe tax on any amount you convert, and it could be substantial. Limiting the max amount would reduce near-term government tax revenue. So I don't think it would happen. [1] https://www.investopedia.com/how-to-do-a-rothira-rollover-4770219#:~:text=A%20Roth%20IRA%20rollover%20(or,and%20it%20could%20be%20substantial https://www.investopedia.com/how-to-do-a-rothira-rollover-47....
baryphonic 5y ago
What is the goal here: to make revenue for the government or to punish successful investors? Thiel paid taxes on his Roth IRA - when he put the money in. As a result, the government didn't have to wait till he was 59.5 years old to get their cut. Thiel for his part was willing to use that money for risky investments. As in, the cash deposited in that account could have well gone to $0 if not for the fact that Thiel is a gifted investor. In that case, the IRA would have been worth nothing but the government would have still gotten their cut ahead of time. Management and mitigation of risk - both for individuals AND the government - is literally the reason Roth IRAs exist. This is indeed the law working absolutely as intended. Anyone could follow the Thiel strategy, except for the fact that ordinary Americans are forbidden from investing in risky investments because they're deemed too stupid by that same government and that Thiel is probably a better investor than just about anyone else.
tengbretson 5y ago
All systems with rules have outliers. If Roth IRAs are hugely beneficial to a large swath of the middle class and at the most extreme outlier it lets a billionaire dodge what is, at the end of the day, a barely significant amount of taxes maybe the correct response is to not care. If policy reaches a local maximum for distributing good and you're upset that someone is wealthy, maybe it's your own envy that's at play.

marris 5y ago

If they intended something else, then why didn't they write the rules to reflect "else"? The truth is that they didn't think that any Roth IRA investor would be as successful as Thiel. He showed that he can be. Good for him.

TaylorAlexander 5y ago
The law is an evolving code as we discover new scenarios. This reporting is exploring one of those unexpected scenarios so we can understand the need to change the law.
- lefrenchy 5y ago
  Not to mention that rich people can pay the smartest legal scholars and financial gurus to find workarounds and engineer ways to make more money.
aeturnum 5y ago
> If they intended something else, then why didn't they write the rules to reflect "else"? If the web server didn't intend to allow a buffer overflow on POST requests, why did it improperly allocate memory? I agree with you that we have a choice: should this be allowed? If not, how do we transition? If yes, do we want to place any limits on it in the future?
- beaner 5y ago
  Why wouldn't it be allowed? If my investments into my Roth IRA performed so we'll i became a billionaire, I wouldn't want to be treated differently. And I wouldn't want my mom or my neighbor to either. They essentially got lucky, they're not taking anything from me in being so fortunate. The "problem" in this case is that Thiel was already a billionaire to begin with, and such luck on top of existing wealth is what irrationally bothers people.
  - aeturnum 5y ago
    We have a progressive tax system, which generally taxes higher incomes at greater rates. Maybe we do want the Roth to be an unlimited shelter, but that has generally not been the approach we have taken. > The "problem" in this case is that Thiel was already a billionaire to begin with, and such luck on top of existing wealth is what irrationally bothers people. This isn't how I feel and I don't actually think that is the case ProPublica is making. Tax breaks can also be understood as payments - is it in the interest of the US to pay Thiel to put his money in a Roth? How much should the US pay? How many of your tax dollars would you want to go to funding tax breaks for Thiel? I am sure people are vindictive as well, but the tax questions seem both meaningful and work asking to me.
    - marris 5y ago
      > Is it in the interest of the US to pay Thiel to put his money in a Roth? How much should the US pay? How many of your tax dollars would you want to go to funding tax breaks for Thiel? I submit that yes, it is in the interest of the US to do this, provided that Thiel is creating value for the US (and to some extent the world) with that money. $5B is approximately one day of US government spending (maybe less now). Letting Thiel invest $5B may not be the best investment decision that the USG has ever made (e.g. Internet funding, Telsa support), but it is way higher than the mean decision.
jychang 5y ago
Are you seriously trying to say that lawmakers can't write buggy code with edge cases they didn't consider?
- marris 5y ago
  Sure they can. Here, I think some lawmakers probably thought (a) "if someone can use this tool that well, then more power to him", or (b) I don't like it, but it is so unlikely, and I can probably live with it. I don't think it was a scenario of someone failing to "consider the case."

jupp0r 5y ago

I think you are missing the point of GP. There is nothing billionaire specific about what Thiel did. You could have done the same with the same Roth contributions. If the law is changed it will not only limit Peter Thiel from doing this but also you and me.

deleted 5y ago
[deleted]
ska 5y ago
> If the law is changed it will not only limit Peter Thiel from doing this but also you and me. That obviously not necessarily true. One can imagine a change in law that limits tax sheltering of this type for any individual to say, 10mm. A tiny fraction of the population would be affected.
- tablespoon 5y ago
  > That obviously not necessarily true. One can imagine a change in law that limits tax sheltering of this type for any individual to say, 10mm. A tiny fraction of the population would be affected. Or limit the types of assets that can be held in an IRA to those that are publicly traded and can be bought on the open market. It seems like an important part of this scheme was Thiel basically got to set the price of some shares he sold himself, because they weren't publicly traded at the time.
  - s1artibartfast 5y ago
    Then you are limiting what people can do with their money 2 inflating stock prices of giant companies. What if I want to invest in a friend's business or buy a rental property. Are you saying it should be illegal for me to do that with my IRA?
    - tablespoon 5y ago
      > Then you are limiting what people can do with their money 2 inflating stock prices of giant companies. So? It's what 99.999% of them do anyway. > What if I want to invest in a friend's business or buy a rental property. Are you saying it should be illegal for me to do that with my IRA? Yes.

peytoncasper 5y ago

What is your limit on how much money should be "sheltered" by a Roth IRA? At the time Thiel was not an ultra-wealthy billionaire. From the article. “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson The Roth IRA is intended to be a retirement vehicle for people to make contributions too with the intention of it not being touched till after retirement. As a perk, it is not taxed. Maybe its not within the "spirit" of the law, but I hardly see how trying to create incredibly granular restrictions on start up founders or people that believe they have a better investing strategy is the right approach. What about making it easier for normal people to have access to the same IPOs that Thiel had access to?

sp332 5y ago
And Roth IRAs are funded post-tax. That means he paid taxes on the income already, before he put the money into the IRA. That's why it's "tax-free".
- peytoncasper 5y ago
  I think that's fair, although, and correct me if I am wrong. Its his current income tax, so it's highly likely that his income tax bracket is lower than the cap gains tax that would normally be applied on investments like this. That being said, I tend to agree. Its to prevent double tax in which you're trying to promote a better investment. Your long term health and retirement.
  - pontifk8r 5y ago
    I'm correcting you: Unless he makes less than $40,000 in salary, the capital gains tax rates are going to be lower than the tax rate for ordinary income. The chart in this article reveals more: https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp https://www.investopedia.com/articles/personal-finance/10151...
- colordrops 5y ago
  Are you suggesting any investment that is made after you've paid taxes on it should be tax free regardless of growth? Roth is an exception, not the rule. Tax is cyclical, not a one time thing, by design. It was never the case that you only ever paid tax once, and it's confusing to me that it's even being suggested otherwise. Roth is a very special exception to this.

lend000 5y ago

> successfully used an instrument designed for the 'middle class' to shelter billions in earnings A Roth IRA is beneficial if positions are being changed (taxable events), because those taxes are deferred. For very long term holding, the benefit caps out at 20% in exchange for tying up the assets for decades. He will eventually benefit, if the company is still valuable when he comes of retirement age, by avoiding the single long term capital gains hit he would otherwise pay. It'll be more of a story, then, if the stock is near an all time high value, but frankly, this is not a scalable investment strategy for the wealthy sheltering their wealth (which would be a more interesting story). This only worked because he has been an exceptionally prescient investor. This wouldn't be a good strategy for every startup founder, because even if the startup was mega-successful, the founders would not be rich until retirement.

birken 5y ago
He has been constantly changing his positions and using the proceeds to invest in other companies. The benefit isn't one time, it is compounding over time, because he gets to keep investing the 20% of extra money he would have had to pay in capital gains, over and over again, as he shifts his money between investments. It would pay off anyways even if he did have to pay 20% when he eventually withdraws, but the fact that he gets it all tax-free makes it pay off massively. He also doesn't have to keep all of his wealth in this Roth IRA, just a percentage. And it clearly is a scalable strategy because lots of people are doing it.
- trident1000 5y ago
  The government taxes people a combined 55% (state, local, fed, ACA) short term capital gains rate (in some states combined with the 40% federal). Fuck em. Im glad he figured out a loop hole.
gnopgnip 5y ago
Nothing is deferred with a Roth IRA. There are no taxes owed on distributions.
erik998 5y ago

golemotron 5y ago

> This is not an article claiming that laws have been broken. It is pointing out the difference in intent and reality for a part of our financial law. There's always a difference between intent and reality. A hammer can be used for many things other than hitting nails.

pbreit 5y ago

"exactly as intended" I would say it's exactly the opposite of intended. ROTH IRAs were never intended for professional investors to avoid taxes.

choppaface 5y ago
Perhaps disqualify accredited investors from ROTHs? Or make it convert if the holder makes so much $$ they become an accredited investor. Or if the individual has paid AMT or less than 20% average tax through age 59.5 then tax all withdraws as ordinary income.
- kybernetikos 5y ago
  I believe that in some countries the equivalent to a Roth is limited to exchange traded companies and relatively low risk funds and bonds. If the intention is for normal people to save for retirement this makes sense to me.
Lazare 5y ago
I mean...it was intended for everyone to use, and the intended use was to avoid taxes (in this one, very limited context). And professional investors are part of "everyone". So...I mean....it really is the intended use.
- scep12 5y ago
  The intention was not to create tax shelters for the ultra-wealthy. Hence the income limits. Thiel used a loophole to grow his wealth using the Roth as the vehicle.
  - parineum 5y ago
    Is the loophole investing well?
  - colordrops 5y ago
    It was at least not a public intention, but I know more than one multi millionaire that has used this "loophole". Peter thiel isn't some super rare exception

efitz 5y ago

The problem is not Peter Thiel. it's not rich people. It's the fact that our elected legislature has created a nightmare boondoggle of a tax code. Rich people have the resources to hire CPAs to dig through tens of thousands of pages of tax law and create strategies to use the law to their advantage. If the law were simple, there would be no way to do this kind of gamesmanship. Personally, I think that we should ditch the entire tax code, set a flat income tax rate - a single rate that applies to everyone and every kind of income - and a standard deduction of say, 1.5x - 2x of whatever "poverty level" income is. Such a system is triple-progressive: first, high income earners pay more because x% of a lot of income is a lot bigger than x% of a little income. It's progressive in that poor people pay nothing due to the standard deduction, and middle income earners pay a pittance for the same reason. And it's progressive in that it eliminates all loopholes so there's no way for high earners to game it. But it only works if you eliminate all deductions and special income treatments including the sacred cows (mortgage deduction and capital gains). Of course this is fantasy; lobbyists for CPAs and for attorneys would never support anyone who voted for this kind of simplification. And, Congress would f** it up immediately by restarting the "let's use the tax code to reward our donors and punish our enemies" process. Sigh.

bronzeage 5y ago
The billionaires don't get regular income, they get asset appreciation of the corporations they own. You need both higher capital income tax in a progressive way, and an incentive to sell. Borrowing against this assets for anything should be illegal until you have paid income taxes on them.
iammisc 5y ago
Yup. This is why I encourage everyone to do their own taxes. It would help people see how stupid it is. So complicated for no reason .
rtpg 5y ago
You think that the legislature exists in a vacuum? That it writes out all these loopholes for fun? That other nations are just broken with their simpler tax code? This is yet another "American exceptionalism" thing where _somehow_ America is the only developped nation in the world with this level of issue yet seems to think it's sort of... intrinsic to the world. The most prescient thing I saw about the Panama Papers leaks was that the biggest reason so few americans were present in those is that America is basically already a tax haven for rich people. A flat income tax rate is not progressive by the usual definition, even with a flat deduction (imagine trying to scale _that_ to inflation and the endless debates). And we already have a solution for what you propose: gradual increase in the tax rate based on income levels! It has the added advantage of actually handling inflation (since the dollar amounts will go up over time anyways), and don't require a single "big tax number". If you believe what you say, just argue to remove various deductions and exceptions. We already have percentage-based tax system, there's no need to be that much cleverer.

choppaface 5y ago

And Thiel is not alone. Max Levchin also dodged taxes by putting his early investments in an IRA. If the act is not an official tax dodge, then it’s a breach of fiduciary for a large investor like Max or Theil AND the company to fail to disclose the IRA lock-up. For Max or the company to show the cap table or advertise the investment on a roadshow yet fail to communicate the illiquidity of the holding— that’s materially misleading.

kenneth 5y ago
You misunderstand it. The holding is not illiquid. It's fully liquid, it's just that Peter and Max's access to the cash proceeds aren't. If someone buys the shares in the Roth, their position is fully liquid: they can sell the next day and use the cash for anything. And the sellers can take the cash and use it for anything that looks like an investment. Like, invest it into another company, or into real estate (like a mansion or yatch)
pkghost 5y ago
That's wrong. Holding something in an IRA doesn't prevent you from selling it, only from taking the proceeds and putting them in your personal checking. The proceeds continue to be property of the IRA/401k, and can be re-invested elsewhere, without incurring a taxable event. You can day-trade in your self-directed 401k or IRA until you're broke or Thiel-level rich, and the IRS will never get involved. I mostly agree with the top-level comment, here; ProPublica is losing a lot of credibility for their mildly misleading and black-and-white framing of these tax issues, and I'm someone who genuinely believes that wealth inequality is a problem that can and should be addressed by the state.
- kyleee 5y ago
  Can one hold and trade crypto in such a vehicle?
  - dlp211 5y ago
    Theoretically, yes. You'd have to use a self-directed IRA, but it can be done.

rsync 5y ago

"I think you're missing the thrust of ProPublica's reporting. This is not an article claiming that laws have been broken. It is pointing out the difference in intent and reality for a part of our financial law." If that is what it is trying to point out then it is failing. This is the intent of a Roth IRA. This is not an accidental feature or a weird corner-case or an unintended consequence. One cannot borrow against a Roth IRA and one cannot withdraw from it without paying taxes. AFAICT there is nothing interesting here other than the dollar value. "... and I think you should be embarrassed to say that the people who created the Roth intended this." I am not your comment-parent but I think they should neither be embarrassed nor not-embarrassed. Are you embarrassed that Billionaires can deduct mortgage interest on their primary residence ? Are you embarrassed that Apple Computer can write off business lunches ?

lmm 5y ago
> Are you embarrassed that Billionaires can deduct mortgage interest on their primary residence ? I was embarrassed to live in a country that had that law, yes (I don't any more). It's a real indictment of a political system that would allow such a thing.
- prepend 5y ago
  If you’re embarrassed that corporations with billions and trillions can expense expenses then the problem may be you. A political system that has different expense rules for different company sizes sounds like a nightmare of dipshits trying to micro issues. Set the rules that are fair on first principles, make sure taxes are proportionate, stick with that.
  - lmm 5y ago
    Rules that are fair on first principles are exactly what I want. The mortgage interest tax deduction is nothing of the sort; it's a grotesque carve-out that distorts the tax system for the sole purpose of transferring common wealth to the people who least need it. It's just obscene.

smsm42 5y ago

There's all the evidence it's exactly what Roth IRA is for in its very design. If whoever designed it meant it to have caps - they would make it have caps. They know how to do caps - they did caps on contribution, they did caps on income for being allowed to contribute (which btw is super low). They didn't put caps on the account size because they didn't intend to have them, not because everybody who designed it suddenly had a stroke and forgot caps are possible.

studentrob 5y ago

> I 100% agree Thiel has broken no crime and I think you should be embarrassed to say that the people who created the Roth intended this. There is no evidence of that. We should recognize that this Roth IRA is sheltering more money than people expected and make (or refrain from making) regulatory changes in response. I remember when I was young and maxed out my Roth, also converted a lot into it, and a tax accountant warned me that the government could change the rules so the gains are taxed. I thought, "no way, they couldn't do that!" Now I see they very well could as a response to arguments such as yours. I can't say I'm a fan of Thiel's business or writings however many of us rely on Roth remaining as-is. It already has limits. Thiel simply made good investments. We shouldn't punish that unless there was something like insider trading occurring. And that should not impact the existence of the Roth.

maroonblazer 5y ago
> Now I see they very well could as a response to arguments such as yours. I think the parent is arguing that a Roth should be limited to some reasonable ceiling, e.g. $1M, $5M, etc.
- studentrob 5y ago
  You would disincentivize good investments and reduce GDP as a result.
- caddemon 5y ago
  You can only put earned income into a Roth, you can only put up to 6K per year, and you are only eligible to put anything at all for a given year if your total earned income was below a fairly modest threshold. Roth IRA already has plenty of restrictions. The fact that one man happened to be some combo of smart/lucky to make the modest initial investment turn into billions is definitely not an indication of whether the Roth is problematic. I think the parent may be confused about the exact details of a Roth.
  - studentrob 5y ago
    You can rollover to get around contribution limits [1], and the government gets your money now rather than later, > A Roth IRA rollover (or conversion) shifts money from a traditional IRA or 401(k) into a Roth. You can get around Roth IRA income limits by doing a rollover. You'll owe tax on any amount you convert, and it could be substantial. Limiting the max amount would reduce near-term government tax revenue. So I don't think it would happen. [1] https://www.investopedia.com/how-to-do-a-rothira-rollover-4770219#:~:text=A%20Roth%20IRA%20rollover%20(or,and%20it%20could%20be%20substantial https://www.investopedia.com/how-to-do-a-rothira-rollover-47....

baryphonic 5y ago

What is the goal here: to make revenue for the government or to punish successful investors? Thiel paid taxes on his Roth IRA - when he put the money in. As a result, the government didn't have to wait till he was 59.5 years old to get their cut. Thiel for his part was willing to use that money for risky investments. As in, the cash deposited in that account could have well gone to $0 if not for the fact that Thiel is a gifted investor. In that case, the IRA would have been worth nothing but the government would have still gotten their cut ahead of time. Management and mitigation of risk - both for individuals AND the government - is literally the reason Roth IRAs exist. This is indeed the law working absolutely as intended. Anyone could follow the Thiel strategy, except for the fact that ordinary Americans are forbidden from investing in risky investments because they're deemed too stupid by that same government and that Thiel is probably a better investor than just about anyone else.

tengbretson 5y ago

All systems with rules have outliers. If Roth IRAs are hugely beneficial to a large swath of the middle class and at the most extreme outlier it lets a billionaire dodge what is, at the end of the day, a barely significant amount of taxes maybe the correct response is to not care. If policy reaches a local maximum for distributing good and you're upset that someone is wealthy, maybe it's your own envy that's at play.