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(ProPublica)   While most Americans are struggling to save for retirement, Peter Thiel's Roth IRA is worth $5 billion, all of which he can withdraw tax-free. How did he do it? He bought his pre-IPO Paypal founders stock through his Roth   (propublica.org) divider line
    More: Sick, Roth IRA, Tax, Taxation in the United States, Billionaire Peter Thiel, Taxation, confiscatory taxes, Individual Retirement Account, prominent anti-tax  
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908 clicks; posted to Business » on 24 Jun 2021 at 7:15 PM (6 weeks ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook



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2021-06-24 7:17:26 PM  
I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?
 
2021-06-24 7:28:26 PM  
What's a retirement?
/millennial
//I'll be working until I'm dead
///maybe I'll get a good deal on a coffin ⚰
 
2021-06-24 7:33:43 PM  

Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?


Yes. Why is the money of rich men sacrosanct when obviously nothing else is?
 
2021-06-24 7:37:16 PM  

Barfmaker: Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?

Yes. Why is the money of rich men sacrosanct when obviously nothing else is?


You would understand if you were rich.
 
2021-06-24 7:37:34 PM  
Didn't Mitt Romney do exactly this, even loading up his kid's IRAs with artificially-low-value stocks?  And he's the working definition of "one of the good Republicans" in 2021.
 
2021-06-24 7:40:02 PM  
Too complicated for most people to understand or see the affects of on their lives.

The world is unfair but what are you going to do about it, what is anyone going to do about it
 
2021-06-24 7:40:34 PM  

Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?


Why not? You could cap the tax-free rate-of-return at 10%/year on accounts with a balance larger than $1 million, and the only people affected would be the kinds of people who got these kinds of sweetheart deals.
 
2021-06-24 7:46:30 PM  

TheSubjunctive: Didn't Mitt Romney do exactly this, even loading up his kid's IRAs with artificially-low-value stocks?  And he's the working definition of "one of the good Republicans" in 2021.


Note to self: acquire some artificially-low-value stocks.
 
2021-06-24 8:07:38 PM  
He'll end up with a legacy like Sheldon Adelson, Rush Limbaugh, Ayn Rand or Joseph McCarthy.  I.e. A huge pile of worthless S*it.  Just like that a-hole Vinod Khosla blocking access via his property to Martins Beach.
 
2021-06-24 8:42:43 PM  
Is the inherited Roth still tax free for the recipient?
 
2021-06-24 8:58:04 PM  
The game is rigged.  Nothing is going to be done about it.  Who is going to change the laws to make things more equitable?  Congress?  President?  Dream on.
 
2021-06-24 9:06:54 PM  
Backdoor Roth - sounds kinky
 
2021-06-24 9:11:08 PM  

TheSubjunctive: Didn't Mitt Romney do exactly this, even loading up his kid's IRAs with artificially-low-value stocks?  And he's the working definition of "one of the good Republicans" in 2021.


Essentially.  He put shares of his company's stock in retirement accounts only to watch the value of those shares skyrocket.
 
2021-06-24 9:17:54 PM  

Enigmamf: Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?

Why not? You could cap the tax-free rate-of-return at 10%/year on accounts with a balance larger than $1 million, and the only people affected would be the kinds of people who got these kinds of sweetheart deals.


we should make a law that only certain class of people are exempt from.  No way that could end up poorly.
 
2021-06-24 9:46:33 PM  

Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?


1) He listed his shares as one tenth of a cent each, then made a crazy amount off that "base rate" months later.

2) Keep Roths as they are, but ban any stock purchases in them that aren't purchased on the open market. Boom. Problem fixed.
 
2021-06-24 10:04:27 PM  

Northern: Is the inherited Roth still tax free for the recipient?


It would be moot.  The cost basis would be reset on the date of death, but the estate tax would apply.
 
2021-06-24 10:14:17 PM  

BMFPitt: It would be moot.  The cost basis would be reset on the date of death,


Not 100% moot.  Yes, estate tax could still apply. But, if you inherit a taxable account, the cost basis resets but it's still a taxable account from that point on.  You inherit the MegaRoth... it is still a (stretch/beneficiary) Roth, as long as you take (tax-free) RMDs based on your lifespan.  It is an advantage, even long after you're gone.
 
2021-06-24 10:24:13 PM  

BMFPitt: Northern: Is the inherited Roth still tax free for the recipient?

It would be moot.  The cost basis would be reset on the date of death, but the estate tax would apply.


Could Peter will the Roth to a trust fund, effectively bypassing the estate tax?
 
2021-06-24 10:34:05 PM  

Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?


Up to you I guess. If you really want to preserve the absolute right to reap an obscene amount for something that more than 99.9 percent of us will never have the opportunity to participate in go ahead. Me, I'm fine with making it an "up to" kind of thing. You make, say tens of millions in your roth you get to pay some tax on your extraordinary largesse. the only one 'harmed' is the guy who has enough to support his children's children. He'll be ok.
 
2021-06-24 10:38:51 PM  
Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.
 
2021-06-24 10:39:25 PM  
How the hell wasn't this insider trading?
 
2021-06-24 10:39:32 PM  

TheSubjunctive: Didn't Mitt Romney do exactly this, even loading up his kid's IRAs with artificially-low-value stocks?  And he's the working definition of "one of the good Republicans" in 2021.


That's exactly it. He put money into a Roth IRA (post tax) and bought a bunch of penny stocks with it. Those penny stocks happened to be special inter-company shares distributed by Bain Capital and they got priority when the victim company was spun back off into the public. From there, it's simple math to take enough gains to max out your social security contribution but not to hit crazy tax levels. And everything else not sold becomes future gains to sell whenever it's cheap to do so.
 
2021-06-24 10:46:32 PM  

c152atn67: Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?

1) He listed his shares as one tenth of a cent each, then made a crazy amount off that "base rate" months later.

2) Keep Roths as they are, but ban any stock purchases in them that aren't purchased on the open market. Boom. Problem fixed.


That's already the law. If he acquired the stocks at a special 'founders' price, then they will be taxable.
 
2021-06-24 11:02:36 PM  

TheSubjunctive: BMFPitt: It would be moot.  The cost basis would be reset on the date of death,

Not 100% moot.  Yes, estate tax could still apply. But, if you inherit a taxable account, the cost basis resets but it's still a taxable account from that point on.  You inherit the MegaRoth... it is still a (stretch/beneficiary) Roth, as long as you take (tax-free) RMDs based on your lifespan.  It is an advantage, even long after you're gone.


The 2017 tax law changed the rules for inherited IRAs.  The recipient must now draw down 100% of the IRA in 10 years or face a 50% tax on the account.  It doesn't matter if that person is an infant or an 80 year old.  It ends the ability of upper middle class Americans to create perpetual IRA trusts.
Now, if this is still a Roth for the recipient then they can simply pay the estate tax then withdraw the entire amount tax free.  If this is treated like a traditional IRA under the 10 year rule then the tax rate is high as it counts as individual income.
But I am speculating, am not a CPA or financial expert.
 
2021-06-24 11:06:44 PM  

cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.


You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.
 
2021-06-24 11:16:52 PM  

Northern: The 2017 tax law changed the rules for inherited IRAs.


D'oh, yeah, forgot about that.  Am an old.
 
2021-06-24 11:27:55 PM  

dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.


No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.
 
2021-06-24 11:30:24 PM  

Troy McClure: TheSubjunctive: Didn't Mitt Romney do exactly this, even loading up his kid's IRAs with artificially-low-value stocks?  And he's the working definition of "one of the good Republicans" in 2021.

Essentially.  He put shares of his company's stock in retirement accounts only to watch the value of those shares skyrocket.


He got those shares for 10 cents on the dollar or less from what I recall, so he didn't really have to wait long for that sky-rocketry.  So $5500/yr of stock options which were actually worth $50k.
 
2021-06-24 11:31:34 PM  

cefm: dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.

No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.


Think about it for 5 seconds: If your interpretation were true, how would that be any different than a non-retirement account?
 
2021-06-24 11:33:41 PM  

SirDigbyChickenCaesar: Enigmamf: Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?

Why not? You could cap the tax-free rate-of-return at 10%/year on accounts with a balance larger than $1 million, and the only people affected would be the kinds of people who got these kinds of sweetheart deals.

we should make a law that only certain class of people are exempt from.  No way that could end up poorly.


Roth IRAs already have an income restriction limit.  Somehow, that hasn't opened the door to a return of segregation.
 
2021-06-24 11:39:53 PM  

Enigmamf: cefm: dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.

No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.

Think about it for 5 seconds: If your interpretation were true, how would that be any different than a non-retirement account?


Go read the IRS regs on what a Roth IRA is and figure it out. It's all there. I'm not here to do your research. I'm just saying the article is wrong and misleading. Contribution to a pre-tax retirement account is no different than gains when you take it out. None of it has been taxed, so all of it is taxable. Contributions to a post-tax (Roth) account aren't taxed again at withdrawal but the gains are. That's the difference. It's all about when you want to pay the tax. If you have a high income now and expect to have a high income after 60, it's a good deal.
 
2021-06-25 12:19:20 AM  
Good for him
 
2021-06-25 12:43:48 AM  

cefm: Go read the IRS regs on what a Roth IRA is and figure it out. It's all there. I'm not here to do your research. I'm just saying the article is wrong and misleading. Contribution to a pre-tax retirement account is no different than gains when you take it out. None of it has been taxed, so all of it is taxable. Contributions to a post-tax (Roth) account aren't taxed again at withdrawal but the gains are. That's the difference. It's all about when you want to pay the tax. If you have a high income now and expect to have a high income after 60, it's a good deal.


You are really going to kick yourself when you realize how wrong you are.
 
2021-06-25 2:02:57 AM  

Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?


Uh no we're supposed to say, you broke the IRA rules by buying assets well below market value and now you're due for a brutal fiscal punishment.
 
2021-06-25 4:02:47 AM  
Holy shiat, fark that page's scrolling behavior.
 
2021-06-25 5:15:36 AM  

stevesporn2000: broke the IRA rules by buying assets well below market value and now you're due for a brutal fiscal punishment.


This. Using your Roth account to buy stock in your own company is prohibited I thought, so if Thiel was a major stockholder or officer of Paypal at the time he bought the stock using his Roth contributions, it shouldn't be allowed. It's a huge conflict of interest.

/Now, if he bought Amazon in 1997 and made billions, that would be a different story.
 
2021-06-25 7:28:24 AM  

cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.


With a Roth, his contribution at the start is after tax, thereby not having any taxes when the retirement account pays out.
 
2021-06-25 7:43:06 AM  

Enigmamf: cefm: dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.

No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.

Think about it for 5 seconds: If your interpretation were true, how would that be any different than a non-retirement account?


The difference is that the value can appreciate without being taxed every year but only gets taxed at the end. This includes being able to sell shares within your Roth and buy new shares and not paying capital gains on the sale. In a normal account, if you sold your shares in IBM to buy Apple, you would owe capital gains tax on the gains from your IBM before you buy the Apple. Also, in a normal account, you owe taxes on any annual dividends. Within the Roth, you can earn dividends and not pay any tax until you withdraw. That makes a great place to plow dividends back into new shares.

But yes, you still owe capital gains tax on the earnings, or in some cases straight income tax, but only upon withdrawal. The big scam is that by dying and passing it on as inheritance most taxes can be skipped.
 
2021-06-25 7:44:25 AM  

Enigmamf: cefm: Go read the IRS regs on what a Roth IRA is and figure it out. It's all there. I'm not here to do your research. I'm just saying the article is wrong and misleading. Contribution to a pre-tax retirement account is no different than gains when you take it out. None of it has been taxed, so all of it is taxable. Contributions to a post-tax (Roth) account aren't taxed again at withdrawal but the gains are. That's the difference. It's all about when you want to pay the tax. If you have a high income now and expect to have a high income after 60, it's a good deal.

You are really going to kick yourself when you realize how wrong you are.


I will have to agree with enigmamf and disagree with cefm. Taxing the gains while it grows makes it a non-retirement account.
 
2021-06-25 7:48:53 AM  

stevesporn2000: Likwit: I mean... it sucks, but are we supposed to say "it's tax free until we decide it isn't"?

Uh no we're supposed to say, you broke the IRA rules by buying assets well below market value and now you're due for a brutal fiscal punishment.


They weren't well below market value. The share price of a startup prior to receiving any equity investment funding is most likely at or near par value, which is around 10¢/share. That's the nominal value of a fledgling startup. It only gets some tangible market value when an investor says, "I'll give you $1,000,000 for 10% equity," making the company be worth $10,000,000.
 
2021-06-25 7:49:56 AM  

TotallyHeadless: stevesporn2000: broke the IRA rules by buying assets well below market value and now you're due for a brutal fiscal punishment.

This. Using your Roth account to buy stock in your own company is prohibited I thought, so if Thiel was a major stockholder or officer of Paypal at the time he bought the stock using his Roth contributions, it shouldn't be allowed. It's a huge conflict of interest.

/Now, if he bought Amazon in 1997 and made billions, that would be a different story.


The lawyer in the article basically said that he advises his clients to not do the exact thing Thiel did. Thiel could be in deep shiat if it's determined that he stuffed Paypal stock into his Roth by deliberately undervauling it.
 
2021-06-25 7:52:42 AM  

wademh: Enigmamf: cefm: dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.

No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.

Think about it for 5 seconds: If your interpretation were true, how would that be any different than a non-retirement account?

The difference is that the value can appreciate without being taxed every year but only gets taxed at the end. This includes being able to sell shares within your Roth and buy new shares and not paying capital gains on the sale. In a normal account, if you sold your shares in IBM to buy Apple, you would owe capital gains tax on the gains from your IBM before you buy the Apple. Also, in a normal account, you owe taxes on any annual dividends. Within the Roth, you can earn dividends and not pay any tax until you withdraw. That makes a great place to plow dividends back into new shares.

But yes, you still owe capital gains tax on the earnings, or in some cases straight income tax, but only upon withdrawal. The big scam is that by dying and passing it on as inheritance most taxes can be skipped.


No, you don't. The Roth was created to allow tax free withdrawals starting at age 59.5. No cap gains tax, no income tax, no tax at all.
.
 
2021-06-25 10:34:10 AM  
https://www.schwab.com/ira/roth-ira/w​i​thdrawal-rules

With a Roth IRA, contributions are not tax-deductible, but earnings can grow tax-free, and qualified withdrawals are tax- and penalty-free. Roth IRA withdrawal and penalty rules vary depending on your age and how long you've had the account and other factors. Before making a Roth IRA withdrawal, keep in mind the following guidelines, to avoid a potential 10% early withdrawal penalty:

Withdrawals must be taken after age 59½.
Withdrawals must be taken after a five-year holding period.
There are exceptions to the early withdrawal penalty, such as a first-time home purchase, college expenses, and birth or adoption expenses.
 
2021-06-25 11:37:35 AM  
Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall.

That is going to buy a nice retirement cottage for him. I bet he has a 27ft + pontoon boat and TWO jet skis.
 
2021-06-25 12:26:08 PM  

Medalis: https://www.schwab.com/ira/roth-ira/w​i​thdrawal-rules

With a Roth IRA, contributions are not tax-deductible, but earnings can grow tax-free, and qualified withdrawals are tax- and penalty-free. Roth IRA withdrawal and penalty rules vary depending on your age and how long you've had the account and other factors. Before making a Roth IRA withdrawal, keep in mind the following guidelines, to avoid a potential 10% early withdrawal penalty:

Withdrawals must be taken after age 59½.
Withdrawals must be taken after a five-year holding period.
There are exceptions to the early withdrawal penalty, such as a first-time home purchase, college expenses, and birth or adoption expenses.


These rules only apply to earnings. You can always withdraw your contributions from a Roth without tax or penalty.

It's not something that should be considered unless your straits are dire, but it's probably better than many other options if things go that badly.
 
2021-06-25 1:01:28 PM  

Enigmamf: cefm: Go read the IRS regs on what a Roth IRA is and figure it out. It's all there. I'm not here to do your research. I'm just saying the article is wrong and misleading. Contribution to a pre-tax retirement account is no different than gains when you take it out. None of it has been taxed, so all of it is taxable. Contributions to a post-tax (Roth) account aren't taxed again at withdrawal but the gains are. That's the difference. It's all about when you want to pay the tax. If you have a high income now and expect to have a high income after 60, it's a good deal.

You are really going to kick yourself when you realize how wrong you are.


This... I really hope @cefm isn't getting this advice from an advisor... if so, tell us who so we can avoid...
 
2021-06-25 1:28:48 PM  
Fark user imageView Full Size
 
2021-06-25 1:53:05 PM  

OccamsWhiskers: These rules only apply to earnings. You can always withdraw your contributions from a Roth without tax or penalty.

It's not something that should be considered unless your straits are dire, but it's probably better than many other options if things go that badly.


It's actually a pretty nice feature in that it allows you to build up an accessible emergency cash buffer while also saving for retirement.

With a traditional IRA, you could only dedicate money to one or the other.
 
2021-06-25 3:50:11 PM  

dustman81: wademh: Enigmamf: cefm: dustman81: cefm: Not true. His original contribution value is not taxed, but earnings of the account when withdrawn are treated as income for tax purposes.

You're describing a traditional IRA. What Thiel has is a Roth IRA, where the money he puts in is taxed, but his withdrawals are not.

No, the post-tax contribution is not taxed again when withdrawn, but the gains while invested are. So if you deposit $5k of already taxed income and after 5+ years and over 59 years of age it has grown to $10k, and you withdraw the whole amount, the first $5k doesn't count as taxable income, but the other $5k counts toward your taxable income total in that year.
The author of the article spent way too much time writing misinformed nonsense and not 5 minutes to understand the difference between the early withdrawal penalty vs just regular taxable income.

Think about it for 5 seconds: If your interpretation were true, how would that be any different than a non-retirement account?

The difference is that the value can appreciate without being taxed every year but only gets taxed at the end. This includes being able to sell shares within your Roth and buy new shares and not paying capital gains on the sale. In a normal account, if you sold your shares in IBM to buy Apple, you would owe capital gains tax on the gains from your IBM before you buy the Apple. Also, in a normal account, you owe taxes on any annual dividends. Within the Roth, you can earn dividends and not pay any tax until you withdraw. That makes a great place to plow dividends back into new shares.

But yes, you still owe capital gains tax on the earnings, or in some cases straight income tax, but only upon withdrawal. The big scam is that by dying and passing it on as inheritance most taxes can be skipped.

No, you don't. The Roth was created to allow tax free withdrawals starting at age 59.5. No cap gains tax, no income tax, no tax at all.
.


My bad
 
2021-06-25 7:25:37 PM  
Why is everyone hating on the the Jewish wing of the Irish Republic Army? I hear they do nice things.
 
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