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What specifically are you arguing against? Roth IRAs are not some bizarre tax loophole. They're an extremely common vehicle for people planning for retirement

What specifically are you arguing against? Roth IRAs are not some bizarre tax loophole. They're an extremely common vehicle for people planning for retirement - unless their income is too high, that is. Many companies even offer Roth 401(k)s or other Roth vehicles for retirement as well. And taxes are indeed paid when the money is put in. If someone follows the rules and is extremely successful with their investment strategy with money in a Roth IRA, then what's the problem? Seems the law is working as intended.

TheCoelacanth 5y ago
You will never convince me in a million years that $2k was actually the fair market value of his investment that was later worth $5 billion. No one is lucky enough to pick an investment like that with the tiny amount of initial capital you can put into an IRA. There are clearly some kind of shenanigans going on to artificially lower the price he paid to smuggle it into the IRA. Those shenanigans may well be legal, but they shouldn't be.
- baryphonic 5y ago
  Since you're beyond convincing, I won't try to. Maybe the article itself can? > In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs. > Anderson dangled something sweeter. > “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson, who is now retired. If the investment ballooned, he remembered saying, “‘you’re not going to pay tax on it when you take it out.’ It’s a no-brainer." > The math was compelling. Thiel wouldn’t get a tax break up front, but he’d avoid an immense tax bill later on if the investment surged in value. For everyone else who is open minded: Thiel's IRA held Confinity shares. In 1999, Confinity wasn't worth much. In 2021 the company now known as PayPal is worth quite a bit. Confinity could have just as easily folded, been a victim of the dot com bubble, failed to make a deal with Elon Musk's x.com and lost to them, or had any number of disasters along the way that would have wiped out that portfolio. Even ProPublica's reporting admits this was a risk. The investment adviser's words are "If you really think this is going to be big, you know, you might want to consider this new Roth." Ironically, because startups fail so much more frequently than they succeed and because the federal government doesn't tax wealth but income, which can be artificially minimized in relatively simple ways, the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Thiel's vast fortune held in a Roth IRA is a corner case, but any talk of it "depriving" the government of revenue when he pre-paid taxes in good faith according to the law and thereby took a fairly significant risk without the benefit of hindsight seems like pure envy.
  - TheCoelacanth 5y ago
    > the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA. Most start-up shares are held in normal taxable accounts because the holders haven't performed shady sales below market value to launder them under the IRA contribution limit. Compared to that the government only loses money by having them in a Roth account.
    - baryphonic 5y ago
      > Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA. How much revenue (income tax, capital gains, whatever) does the IRS receive for an investment whose value drops to $0? Also, no fraud needed to happen. He earned the money from Confinity, paid taxes on it, invested in some of his (very risky) shares with the IRA and then it paid off over the next 2+ decades. If you have evidence of this kind of fraud, please let us know. If it were to exist, you'd probably see some evidence (e.g. parallel books, skepticism from investors). ProPublica has tax and other records and they seem to have no evidence that supports your claim whatsoever. Isn't the most likely story that he put his shares in this account, his company did take off and now he has continued to grow it?
      - throwaway34241 5y ago
        From my memory of how early stage startups work: The company’s future is very unclear and subjective, and informed investors make bets using their experience and the market determines the price. But that’s for the preferred stock. The employees are compensated with common stock, which is valued at some fraction of that. There is often no market price since it’s not sold to investors. It’s also very unclear and subjective, and the reported value is picked by the company in a situation where everyone wants it to be low. The first result Googling it (DLA Piper) says it often used to be determined by just dividing the preferred stock price by 10, until accounting rule changes in the early 2000s. I think “fraud” is a bit strong here - it’s very subjective after all - but it may not exactly be a fair market price either.

TheCoelacanth 5y ago

You will never convince me in a million years that $2k was actually the fair market value of his investment that was later worth $5 billion. No one is lucky enough to pick an investment like that with the tiny amount of initial capital you can put into an IRA. There are clearly some kind of shenanigans going on to artificially lower the price he paid to smuggle it into the IRA. Those shenanigans may well be legal, but they shouldn't be.

baryphonic 5y ago
Since you're beyond convincing, I won't try to. Maybe the article itself can? > In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs. > Anderson dangled something sweeter. > “I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth,’” recalled Anderson, who is now retired. If the investment ballooned, he remembered saying, “‘you’re not going to pay tax on it when you take it out.’ It’s a no-brainer." > The math was compelling. Thiel wouldn’t get a tax break up front, but he’d avoid an immense tax bill later on if the investment surged in value. For everyone else who is open minded: Thiel's IRA held Confinity shares. In 1999, Confinity wasn't worth much. In 2021 the company now known as PayPal is worth quite a bit. Confinity could have just as easily folded, been a victim of the dot com bubble, failed to make a deal with Elon Musk's x.com and lost to them, or had any number of disasters along the way that would have wiped out that portfolio. Even ProPublica's reporting admits this was a risk. The investment adviser's words are "If you really think this is going to be big, you know, you might want to consider this new Roth." Ironically, because startups fail so much more frequently than they succeed and because the federal government doesn't tax wealth but income, which can be artificially minimized in relatively simple ways, the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Thiel's vast fortune held in a Roth IRA is a corner case, but any talk of it "depriving" the government of revenue when he pre-paid taxes in good faith according to the law and thereby took a fairly significant risk without the benefit of hindsight seems like pure envy.
- TheCoelacanth 5y ago
  > the government would probably be better off if all startup shares in all companies were held in Roth IRAs, since they'd be taking an up-front cut of a likely failed investment. Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA. Most start-up shares are held in normal taxable accounts because the holders haven't performed shady sales below market value to launder them under the IRA contribution limit. Compared to that the government only loses money by having them in a Roth account.
  - baryphonic 5y ago
    > Only if the alternative was holding it in some other tax-advantaged account like a traditional IRA. How much revenue (income tax, capital gains, whatever) does the IRS receive for an investment whose value drops to $0? Also, no fraud needed to happen. He earned the money from Confinity, paid taxes on it, invested in some of his (very risky) shares with the IRA and then it paid off over the next 2+ decades. If you have evidence of this kind of fraud, please let us know. If it were to exist, you'd probably see some evidence (e.g. parallel books, skepticism from investors). ProPublica has tax and other records and they seem to have no evidence that supports your claim whatsoever. Isn't the most likely story that he put his shares in this account, his company did take off and now he has continued to grow it?
    - throwaway34241 5y ago
      From my memory of how early stage startups work: The company’s future is very unclear and subjective, and informed investors make bets using their experience and the market determines the price. But that’s for the preferred stock. The employees are compensated with common stock, which is valued at some fraction of that. There is often no market price since it’s not sold to investors. It’s also very unclear and subjective, and the reported value is picked by the company in a situation where everyone wants it to be low. The first result Googling it (DLA Piper) says it often used to be determined by just dividing the preferred stock price by 10, until accounting rule changes in the early 2000s. I think “fraud” is a bit strong here - it’s very subjective after all - but it may not exactly be a fair market price either.