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> successfully used an instrument designed for the 'middle class' to shelter billions in earnings A Roth IRA is beneficial if positions are being changed (taxa

> 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
This worked because he used a self directed IRA that most likely invested in some LLC with a marginal amount. It's very probable he also invested in the same company via some other investment vehicle, possibly direct ownership. The managing members simply assigned more benefits to the self directed IRA instead of the other account... What does not seem fair is that most people think you can only invest in stocks and bonds in an IRA. You go to a bank or brokerage to open an IRA account... They offer you mutual funds, etfs, stocks, bonds... not much else... No one ever tells you that you can do this a different way and invest in different ways... Why? It's just too complicated for most people... https://trustprovident.com/self-directed-investing-in-a-limited-liability-company-or-limited-partnership-with-qualified-funds/ https://trustprovident.com/self-directed-investing-in-a-limi... Yes it does suck for the rest of us but if you have money you have good advisors that can construct this IRA and all of its transactions in a legitimate manner.
- erentz 5y ago
  What really sucks is I never got the opportunity to invest in PYPL at $0.001 per share. That’s the part that actually confused me. Sure its pre-IPO, but I’ve never seen any that are pricing their shares that low in the beginning, did I miss something?
  - erik998 5y ago
    oh yes the par value of stock... https://www.nolo.com/legal-encyclopedia/what-is-par-value-stock.html https://www.nolo.com/legal-encyclopedia/what-is-par-value-st... I think he went the route of his IRA's investment llc membership units being assigned a super large assignment of income distribution vs his initial investment. just guessing...
    - erentz 5y ago
      I’m still not really following, what are you saying about assigning income distribution? But so the way the article made it sound then is his IRA paid for the shares at par value ($1700 = 1700000 shares IIRC). Even though they were of course worth more than par value, so then he owes money to the company for the difference but if that wasn’t paid out of the IRA that would seem an incredible and surely illegal tax dodge so I don’t think that could be the case.

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

This worked because he used a self directed IRA that most likely invested in some LLC with a marginal amount. It's very probable he also invested in the same company via some other investment vehicle, possibly direct ownership. The managing members simply assigned more benefits to the self directed IRA instead of the other account... What does not seem fair is that most people think you can only invest in stocks and bonds in an IRA. You go to a bank or brokerage to open an IRA account... They offer you mutual funds, etfs, stocks, bonds... not much else... No one ever tells you that you can do this a different way and invest in different ways... Why? It's just too complicated for most people... https://trustprovident.com/self-directed-investing-in-a-limited-liability-company-or-limited-partnership-with-qualified-funds/ https://trustprovident.com/self-directed-investing-in-a-limi... Yes it does suck for the rest of us but if you have money you have good advisors that can construct this IRA and all of its transactions in a legitimate manner.

erentz 5y ago
What really sucks is I never got the opportunity to invest in PYPL at $0.001 per share. That’s the part that actually confused me. Sure its pre-IPO, but I’ve never seen any that are pricing their shares that low in the beginning, did I miss something?
- erik998 5y ago
  oh yes the par value of stock... https://www.nolo.com/legal-encyclopedia/what-is-par-value-stock.html https://www.nolo.com/legal-encyclopedia/what-is-par-value-st... I think he went the route of his IRA's investment llc membership units being assigned a super large assignment of income distribution vs his initial investment. just guessing...
  - erentz 5y ago
    I’m still not really following, what are you saying about assigning income distribution? But so the way the article made it sound then is his IRA paid for the shares at par value ($1700 = 1700000 shares IIRC). Even though they were of course worth more than par value, so then he owes money to the company for the difference but if that wasn’t paid out of the IRA that would seem an incredible and surely illegal tax dodge so I don’t think that could be the case.