5 ms·

Say goodbye to self-directed IRA and tax-free Roth growth

12 points by wtf_larper 5y ago

wtf_larper 5y ago
The House Ways and Means Committee recently released proposed tax legislation intended to pay for President Biden’s $3.5 trillion infrastructure bill. Several provisions severely restrict your freedom to self-direct the investments in your IRA. Under these provisions, you would no longer be allowed to invest your IRA into private placements and single-member LLCs, regardless of your level of income or wealth. To make matters worse, these provisions require anyone currently holding these assets, which are often illiquid, to distribute or otherwise remove them from their IRA accounts within two years. This will result in significant tax consequences for many people, including low and middle-income investors.
- wtf_larper 5y ago
  More info: https://www.midlandtrust.com/save-my-self-directed-ira/ https://www.midlandtrust.com/save-my-self-directed-ira/ https://markjkohler.com/congress-is-attacking-the-ira-of-average-americans/ https://markjkohler.com/congress-is-attacking-the-ira-of-ave... https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax-Title-Section-by-Section-Explanation-9.13.21-002.pdf https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax...
- fspeech 5y ago
  On the flip side what is to stop people from setting up an llc and have their ira own the llc and shunt all their income into the llc to avoid paying any tax?
  - wtf_larper 5y ago
    You won't be able to access any of the money until 65 years of age, after retirement. And if it's a traditional IRA account, you'll pay taxes on them on withdrawal. For Roth, there is an annual CAP ($6000 for 2021) on how much you can put into the account/LLC. You've already paid taxes on the money you've put into Roth. The whole point of Roth is so that you get tax-free gains so that when you withdraw at retirement, you don't have to pay taxes again.
    - fspeech 5y ago
      I don't think it necessarily works that way. You contribute illiquid llc units to the ira. The value of the contribution is up to you since it is not traded. You distribute taxable income to the ira through the llc, but no actual cash needs to be distributed. There is no cap on the amount of income you can distribute because it is return on capital, not new contribution therefore not suject to the contribution limit. The actual cash is still in the llc under your control.
  - deleted 5y ago
    [deleted]
- nopeYouAreWrong 5y ago
  there is no such thing as a low income investor. yall live in a bubble. most people don't even have an IRA. most people don't even know what an IRA is
- bryanlarsen 5y ago
  This is all Peter Thiel's fault. https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...
  - RhysU 5y ago
    This is the fault of the people who elected these representatives.
- throwoutway 5y ago
  The last sentence needs a source/evidence. Low and middle income investors rarely (if ever) use self-directed IRAs to invest in illiquid private placements and single member LLCs.
DevKoala 5y ago
Tons of sacrifices to pay for that infrastructure plan that is 50% not infrastructure at all. At least call it something else.
smitty1e 5y ago
The United States tax code is an iron rod of oppression. Were the political system to function in a reasonable manner, candidates would be elected on a platform including reform of that hot mess. Complexity is a subsidy. A simple tax code understandable by a random high school graduate should suffice.
eight26 5y ago
If I’m reading correctly, as someone who maxes out Roth contributions into public stocks, bonds and mutual funds this will not affect me at all. The point is to close loopholes used by the likes of Peter Thiel.
- boardwaalk 5y ago
  Right. The article starts out disingenuous at best. Just be honest: “middle class” people are mostly not using this stuff. It makes me hope it passes is what it does.
- RhysU 5y ago
  Just tonight a friend told me that he was starting a small business. I encouraged him to look into financing some of his business by selling equity to his own Roth IRA. I have no idea if that's possible but he'd be nuts not to do it if it adheres to the law. The friend's name is not Peter Thiel.

12 points by wtf_larper 5y ago

The House Ways and Means Committee recently released proposed tax legislation intended to pay for President Biden’s $3.5 trillion infrastructure bill. Several provisions severely restrict your freedom to self-direct the investments in your IRA. Under these provisions, you would no longer be allowed to invest your IRA into private placements and single-member LLCs, regardless of your level of income or wealth. To make matters worse, these provisions require anyone currently holding these assets, which are often illiquid, to distribute or otherwise remove them from their IRA accounts within two years. This will result in significant tax consequences for many people, including low and middle-income investors.

wtf_larper 5y ago
More info: https://www.midlandtrust.com/save-my-self-directed-ira/ https://www.midlandtrust.com/save-my-self-directed-ira/ https://markjkohler.com/congress-is-attacking-the-ira-of-average-americans/ https://markjkohler.com/congress-is-attacking-the-ira-of-ave... https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax-Title-Section-by-Section-Explanation-9.13.21-002.pdf https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax...
fspeech 5y ago
On the flip side what is to stop people from setting up an llc and have their ira own the llc and shunt all their income into the llc to avoid paying any tax?
- wtf_larper 5y ago
  You won't be able to access any of the money until 65 years of age, after retirement. And if it's a traditional IRA account, you'll pay taxes on them on withdrawal. For Roth, there is an annual CAP ($6000 for 2021) on how much you can put into the account/LLC. You've already paid taxes on the money you've put into Roth. The whole point of Roth is so that you get tax-free gains so that when you withdraw at retirement, you don't have to pay taxes again.
  - fspeech 5y ago
    I don't think it necessarily works that way. You contribute illiquid llc units to the ira. The value of the contribution is up to you since it is not traded. You distribute taxable income to the ira through the llc, but no actual cash needs to be distributed. There is no cap on the amount of income you can distribute because it is return on capital, not new contribution therefore not suject to the contribution limit. The actual cash is still in the llc under your control.
- deleted 5y ago
  [deleted]
nopeYouAreWrong 5y ago
there is no such thing as a low income investor. yall live in a bubble. most people don't even have an IRA. most people don't even know what an IRA is
bryanlarsen 5y ago
This is all Peter Thiel's fault. https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank https://www.propublica.org/article/lord-of-the-roths-how-tec...
- RhysU 5y ago
  This is the fault of the people who elected these representatives.
throwoutway 5y ago
The last sentence needs a source/evidence. Low and middle income investors rarely (if ever) use self-directed IRAs to invest in illiquid private placements and single member LLCs.

DevKoala 5y ago

Tons of sacrifices to pay for that infrastructure plan that is 50% not infrastructure at all. At least call it something else.

smitty1e 5y ago

The United States tax code is an iron rod of oppression. Were the political system to function in a reasonable manner, candidates would be elected on a platform including reform of that hot mess. Complexity is a subsidy. A simple tax code understandable by a random high school graduate should suffice.

eight26 5y ago

If I’m reading correctly, as someone who maxes out Roth contributions into public stocks, bonds and mutual funds this will not affect me at all. The point is to close loopholes used by the likes of Peter Thiel.

boardwaalk 5y ago
Right. The article starts out disingenuous at best. Just be honest: “middle class” people are mostly not using this stuff. It makes me hope it passes is what it does.
RhysU 5y ago
Just tonight a friend told me that he was starting a small business. I encouraged him to look into financing some of his business by selling equity to his own Roth IRA. I have no idea if that's possible but he'd be nuts not to do it if it adheres to the law. The friend's name is not Peter Thiel.