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I hate Peter Thiel with a vengeance but had the same reaction as you. This article was a nothingburger. Alternate headline: “man wins lottery with Roth investm

by atonse 4y ago

I hate Peter Thiel with a vengeance but had the same reaction as you. This article was a nothingburger. Alternate headline: “man wins lottery with Roth investments and has to pay no taxes” Unlike many tax shelters and other billionaire only toys, this Roth stuff is accessible to literally everyone. If I had put in $5k of Roth money every year into Apple stock I similarly would’ve minted money.

vsareto 4y ago
There's two things I find worth considering as maybe-wrong: 1) non-public investment opportunities in combination with tax-free status 2) no sanity threshold to collect some taxes after your Roth balance becomes large enough 1 is maybe a violation of the spirit of what a Roth was designed to be used for. You should be able to invest (cash only would be dumb), but you shouldn't get tax free returns for every kind of investment you make. Public shares might be tax free, but using the Roth for venture capital or private investing seems a little wrong. 2 is just silly to me, and I blame lawmakers for that. No one needs $5b tax free, especially since you can't ever reach that with contribution limits.
- garyrichardson 4y ago
  In Canada we have something called the "Tax Free Savings Account" which functions in a very similar manner. EXCEPT when the CRA started figuring out people were using it for private assets, like non-public company shares, they changed the rules.
tootie 4y ago
It's one thing to say "a potential loophole exists" to "someone has successfully exploited the loophole on a massive scale already".
- lotsofpulp 4y ago
  And it is yet another thing to say “in 1999, someone gambled $2k worth of equity and got lucky it grew to be worth a few billion 22 years in the future.”
  - tootie 4y ago
    It's another thing to say this was a program designed to help working people retire more comfortably and not as a tax shelter for risky investments. I know Thiel didn't do anything explicitly illegal so there's no recourse to recoup the taxes, but it's obviously skirting the spirit of the law. And a pretty easy regulatory update to cap the value of Roth withdrawals. No tax on gains up to $10M or something would protect 99.9% of savers and prevent this tactic from being weaponized.
    - lotsofpulp 4y ago
      >but it's obviously skirting the spirit of the law. This is not obvious to me, as it would have been trivial for legislators to specify a CPI adjusted maximum for the tax advantaged gains. >And a pretty easy regulatory update to cap the value of Roth withdrawals. Yes, and I encourage Congress to do that. That has always been one of the risks with opting for Roth.
  - tootie 4y ago
    That's not really what happened if you read the article. The Bush admin created a deliberate hole in the program to allow investors to convert holding to Roths. It's a weaponized tax shelter program. And it's one that can be exploited over and over. This is less a story that Thiel broke the rules and more that Republican policy used a clever trick to allow this to happen. You can still blame this on Thiel in a roundabout way since he is such a heavy Republican donor, this seems like a pretty straightforward case of regulatory capture.

by atonse 4y ago

vsareto 4y ago

There's two things I find worth considering as maybe-wrong: 1) non-public investment opportunities in combination with tax-free status 2) no sanity threshold to collect some taxes after your Roth balance becomes large enough 1 is maybe a violation of the spirit of what a Roth was designed to be used for. You should be able to invest (cash only would be dumb), but you shouldn't get tax free returns for every kind of investment you make. Public shares might be tax free, but using the Roth for venture capital or private investing seems a little wrong. 2 is just silly to me, and I blame lawmakers for that. No one needs $5b tax free, especially since you can't ever reach that with contribution limits.

garyrichardson 4y ago
In Canada we have something called the "Tax Free Savings Account" which functions in a very similar manner. EXCEPT when the CRA started figuring out people were using it for private assets, like non-public company shares, they changed the rules.

tootie 4y ago

It's one thing to say "a potential loophole exists" to "someone has successfully exploited the loophole on a massive scale already".

lotsofpulp 4y ago
And it is yet another thing to say “in 1999, someone gambled $2k worth of equity and got lucky it grew to be worth a few billion 22 years in the future.”
- tootie 4y ago
  It's another thing to say this was a program designed to help working people retire more comfortably and not as a tax shelter for risky investments. I know Thiel didn't do anything explicitly illegal so there's no recourse to recoup the taxes, but it's obviously skirting the spirit of the law. And a pretty easy regulatory update to cap the value of Roth withdrawals. No tax on gains up to $10M or something would protect 99.9% of savers and prevent this tactic from being weaponized.
  - lotsofpulp 4y ago
    >but it's obviously skirting the spirit of the law. This is not obvious to me, as it would have been trivial for legislators to specify a CPI adjusted maximum for the tax advantaged gains. >And a pretty easy regulatory update to cap the value of Roth withdrawals. Yes, and I encourage Congress to do that. That has always been one of the risks with opting for Roth.
- tootie 4y ago
  That's not really what happened if you read the article. The Bush admin created a deliberate hole in the program to allow investors to convert holding to Roths. It's a weaponized tax shelter program. And it's one that can be exploited over and over. This is less a story that Thiel broke the rules and more that Republican policy used a clever trick to allow this to happen. You can still blame this on Thiel in a roundabout way since he is such a heavy Republican donor, this seems like a pretty straightforward case of regulatory capture.