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You’re missing the point. In all accounts you are either taxed now or later. The exact same amount of $ value in incremental capital gains are untaxed in all qu

You’re missing the point. In all accounts you are either taxed now or later. The exact same amount of $ value in incremental capital gains are untaxed in all qualified accounts, by design and intent.

PaulDavisThe1st 5y ago
One of us is clearly not correctly informed about this. Traditional IRA: contributions are pre-tax, tax paid upon withdrawal. Theory is you will contribute more to avoid taxes while earning, compound growth works to your benefit, but now pay taxes on the full amount in the IRA as you withdraw it. Roth IRA: contributions are post-tax, no tax paid on withdrawal. Conventional theory for typical earnings level is that you will be in a higher tax bracket when you start withdrawing then when contributing, so pay the taxes up front, let compound growth do its thing, then take out the entire amount with no taxes. Ergo, if you can get contributions into a Roth that you know will show enormous amounts of gain, you're going to be able to pull that out entirely tax free. That would not be true for a traditional IRA or 401k, where you will pay taxes as you withdraw.
- the_optimist 5y ago
  I agree with this. If you do the math, you will recognize that the end amount that you have in your pocket, given the same tax rate, is the same. That is true irrespective of the rate of return.
  - PaulDavisThe1st 5y ago
    That's missing the point entirely. If Thiel had been unable to place that stock into a Roth IRA (i.e. buy it with funds already in the Roth), then the gains on it would end up being subject to taxation. Instead, he will be able to withdraw the $5B or whatever it is without paying any taxes on those gains. For example, had he done this with a traditional IRA, then as he eventually withdrew the money, he would pay tax on the full amount in the IRA. Put pseudo-graphically: Roth: 1: invest $1 of post-tax income in the IRA 2: direct the IRA to purchase $1 of some stock 3: wait N years 4: IRA now worth $5B 5: withdraw $5B tax-free Traditional/401k: 1: invest $1 of pre-tax income in the IRA/401k 2: direct the IRA/401k to purchase $1 of some stock 3: wait N years 4: IRA/401k now worth $5B 5: withdraw $5B and pay income tax rate on $5B - $1 Difference in total benefit: whatever the tax is on $5B - $1

PaulDavisThe1st 5y ago

One of us is clearly not correctly informed about this. Traditional IRA: contributions are pre-tax, tax paid upon withdrawal. Theory is you will contribute more to avoid taxes while earning, compound growth works to your benefit, but now pay taxes on the full amount in the IRA as you withdraw it. Roth IRA: contributions are post-tax, no tax paid on withdrawal. Conventional theory for typical earnings level is that you will be in a higher tax bracket when you start withdrawing then when contributing, so pay the taxes up front, let compound growth do its thing, then take out the entire amount with no taxes. Ergo, if you can get contributions into a Roth that you know will show enormous amounts of gain, you're going to be able to pull that out entirely tax free. That would not be true for a traditional IRA or 401k, where you will pay taxes as you withdraw.

the_optimist 5y ago
I agree with this. If you do the math, you will recognize that the end amount that you have in your pocket, given the same tax rate, is the same. That is true irrespective of the rate of return.
- PaulDavisThe1st 5y ago
  That's missing the point entirely. If Thiel had been unable to place that stock into a Roth IRA (i.e. buy it with funds already in the Roth), then the gains on it would end up being subject to taxation. Instead, he will be able to withdraw the $5B or whatever it is without paying any taxes on those gains. For example, had he done this with a traditional IRA, then as he eventually withdrew the money, he would pay tax on the full amount in the IRA. Put pseudo-graphically: Roth: 1: invest $1 of post-tax income in the IRA 2: direct the IRA to purchase $1 of some stock 3: wait N years 4: IRA now worth $5B 5: withdraw $5B tax-free Traditional/401k: 1: invest $1 of pre-tax income in the IRA/401k 2: direct the IRA/401k to purchase $1 of some stock 3: wait N years 4: IRA/401k now worth $5B 5: withdraw $5B and pay income tax rate on $5B - $1 Difference in total benefit: whatever the tax is on $5B - $1