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Peter Thiel Has Accumulated $5B in a Roth IRA

41 points by codesternews 5y ago

nikanj 5y ago
I’m annoyed that the articles make it sound so easy. ”Just start a company and take it to the moon!” The article makes it sound trivial to reliably and repeatedly catch lightning in a bottle like Paypal and Palantir did
gdsdfe 5y ago
They keep pointing fingers at the guy but he did nothing wrong. What needs to be changed is that access to this type of investments, i.e private equity, should not be only accessible to accredited investors and the untaxed amount in an IRA should be capped.
- wavefunction 5y ago
  From what I've read there are some laws regarding what certain types of individuals (executives, investors, extremely highly compensated employees) can do with Roth accounts and the stock of the companies they're running/investing in/contributing to which he broke.
- nikanj 5y ago
  The restrictions for un-accredited investors are written in blood. So many people would lose their savings if they were freely allowed to invest. We don’t really have consumer protection laws for seed rounds and startup stocks, and it’s hard to see how those would work. Publicly traded companies are under the watchful eye of SEC, and have already proven to not be completely bogus.
  - gdsdfe 5y ago
    Sorry but this sort of protectionism is wrong in my opinion ... It's like saying don't get a motorcycle because you might get into an accident.
    - nikanj 5y ago
      Ultimately this is a matter of opinion. We the society have decided that the people need to protected from, well, the people. Personally I prefer it this way. I want to assume that foods for sale won't poison me, investment products for sale aren't 100% scams, vehicles won't explode on me, etc.
      - gdsdfe 5y ago
        I'm not saying it should be a free for all on everything, I'm saying we should have leveled playing field when it comes to investment and the opportunity for people to better their lives ... why only a handful of people have the opportunity to make a 100x investment and not others ? because of risk?! well investing in the stock market is also a risk ... everything is a risk! the solution is to make sure people understand these risks and have the tools to hedge against them. like if I go bungee jumping I know for a fact that one of the outcomes might be death but I should be able to assess for myself what are the chances of that happening I do NOT want the government forbid bungee jumping because I might die.
- deleted 5y ago
  [deleted]
- dahfizz 5y ago
  > the untaxed amount in an IRA should be capped. Why? The money that goes into an IRA already has income taxes taken out.
IncRnd 5y ago
Taxes are paid prior to depositing into a Roth IRA. So, what additional taxes would you expect to be paid if there were no Roth IRA involved? Taxes were already paid.
- dna_polymerase 5y ago
  Usually capital gains taxes would apply.
- not33 5y ago
  I doubt that $5B didn't get there without any growth after taxes were paid. If there were no Roth IRA, any capital gains would be taxed.
  - IncRnd 5y ago
    Yes, capital gains taxes would be paid without a Roth IRA. Similarly, if the funds will be used prior to 59 1/2 from within a Roth IRA, then capital gains will still be paid. If there is an early withdrawl, then there is an additional tax penalty. An IRA protects the owner from capital gains, because the funds aren't being used. I think the point is that the Roth IRA was used in the exact way it was designed and how anyone can use one.
- sjg007 5y ago
  In this case the difference between FMV and strike was $0 so no taxes were actually paid at all.
dna_polymerase 5y ago
The accounts are capped at a contribution of $6000 to $7000 per year. Thiel turned $2000 into this amount. I don't see the systemic problem here. And I see the government's entitlement to taxes on that even less. Whatever Thiel is like as a person, as a businessman he has been connected to the big things in the past two decades like no one else. Give the man a break. Also, I love these hit pieces on Forbes and the other news sites, followed by a native advertisement. "F! the capitalist for making money, but really give us money"!
- TrueGeek 5y ago
  > Thiel turned $2000 into this amount Is there a history of what trades he made and over what period? A $2k investment to $5B is insane.
  - jeremysalwen 5y ago
    You can actually put ~50k per year into a Roth ira using the mega backdoor technique. Still impressive.
  - spamizbad 5y ago
    The "trick" is you put your near-worthless startup stock into the fund before any major valuations. So when your company shares are worth $0.01 or whatever, you put in a few thousand dollars worth of them each year before you valuation skyrockets. Assuming the company goes public, the shares stay in the Roth. IANAL but I assume you lose Roth benefits and probably pay some penalties if the company gets sold for cash.
    - nrmitchi 5y ago
      As discussed previously, this "trick" is actually explicitly not permitted, because you could do something like say "My stock is only work $0.001 each ;)" while simultaneously selling to investors are orders-of-magnitude higher valuations. I mean, let's be real: the argument in defense of this is that Thiel bought his founders shares at "a fair value". There were 3 original founders, so the argument is that the company had a fair value of.... ~$5k? > you put in a few thousand dollars worth of them each year before you valuation skyrockets You can't transfer assets into an IRA like this either.
Moodles 5y ago
I think Mitt Romney famously has a lot in his Roth IRA in a similar way [1]. As others have said, it's not actually illegal so I think pointing fingers at individuals who do it (for themselves, their families, etc.) is wrong. If you think it's immoral, go after the people writing the tax codes because 100% if I had the option I would do the same. You'd honestly be a fool to not shelter your millions from taxes if you could. Worst case, you could donate it to the government anyway. Or, donate to a charity of your choice. Or, give it to your kids. Why on Earth wouldn't you legally avoid tax if you could? Also, if you think this should be changed, what should the law be, exactly? You're not allowed to make insane profits in a Roth IRA? Why? Or you're only allowed certain types of investments (like index funds?) in a Roth IRA? In my opinion (and it is an emotional judgement), I think America is based on freedom, and Roth money is money you already paid taxes on, and you should be allowed to invest it however you want. It's your money after all. And I say this as someone who literally only invests in boring index funds myself. [1] https://www.theatlantic.com/politics/archive/2012/09/whats-really-going-on-with-mitt-romneys-102-million-ira/261500/ https://www.theatlantic.com/politics/archive/2012/09/whats-r...
- nr2x 5y ago
  Pointing fingers at it is how you get public attention to the problem, which may lead to demands for change, which is the purpose of accountability journalism in a democracy.
- nomoreplease 5y ago
  The easiest solution is to cap at a maximum value for Roth (post-tax) purposes. Pick a number ($50M, $100M, $200M), and anything over gets taxed at traditional rates. You can only put in $6,000USD/year into an IRA, so it's absurd for anyone to pretend a return of $1B USD+ is acceptable. $6k/yr for 30 years at a very-high interest rate of 15% results in $31.3M .. so capping Roth-value at $50M will prevent extreme abuse. Though, I suspect many will argue for a lower cap
  - Moodles 5y ago
    I think the UK has a similar policy with pensions with a cap around £1m. Not saying it's a good or bad idea as I really havn't studied the economics of it, but other countries definitely do it. Though a UK pension is more like a 401(k) (pre tax) than a Roth (after tax).
skeeter2020 5y ago
A government program with unintended consequences? What are the odds? There are a lot of things to dislike about Peter Thiel, maybe even enough to dislike the person, but this is not one of them.
ethbr0 5y ago
Good for him. Of all the US retirement schemes, Roth seems like the simplest promise. Put after tax money in, and we promise not to tax it on the way out. And we'll limit some obvious loopholes to abuse Roth investing (e.g. UBI).
adolph 5y ago
5 days ago on HN: https://news.ycombinator.com/item?id=27616090 https://news.ycombinator.com/item?id=27616090
deleted 5y ago
[deleted]
HWR_14 5y ago
If I buy a house with my Roth IRA and fix a window the whole thing loses tax-exempt status. You're not supposed to able to have your Roth benefit from your labor - just capital investment. Thiel invests in PayPal as a Roth IRA at a founder-level price as it's starting up, and that seems equivalent to me. If I use non-Roth funds to pay someone to a fix a window, I also lose tax-exempt status. Even if the Roth pays it back it's a loan. Thiel had already loaned $100,000 to PayPal. Given that shortly after Theil's Roth's investment they closed funding with multimillion dollar valuations (instead of the tenth a cent a share he paid), I'm not sure that valuation really was a fair market value. Especially since they were priced as "founder's shares". So how did Thiel not do something wrong with a retirement account legally required to be conducted at arms-length from him?

41 points by codesternews 5y ago

I’m annoyed that the articles make it sound so easy. ”Just start a company and take it to the moon!” The article makes it sound trivial to reliably and repeatedly catch lightning in a bottle like Paypal and Palantir did

gdsdfe 5y ago

They keep pointing fingers at the guy but he did nothing wrong. What needs to be changed is that access to this type of investments, i.e private equity, should not be only accessible to accredited investors and the untaxed amount in an IRA should be capped.

wavefunction 5y ago
From what I've read there are some laws regarding what certain types of individuals (executives, investors, extremely highly compensated employees) can do with Roth accounts and the stock of the companies they're running/investing in/contributing to which he broke.
nikanj 5y ago
The restrictions for un-accredited investors are written in blood. So many people would lose their savings if they were freely allowed to invest. We don’t really have consumer protection laws for seed rounds and startup stocks, and it’s hard to see how those would work. Publicly traded companies are under the watchful eye of SEC, and have already proven to not be completely bogus.
- gdsdfe 5y ago
  Sorry but this sort of protectionism is wrong in my opinion ... It's like saying don't get a motorcycle because you might get into an accident.
  - nikanj 5y ago
    Ultimately this is a matter of opinion. We the society have decided that the people need to protected from, well, the people. Personally I prefer it this way. I want to assume that foods for sale won't poison me, investment products for sale aren't 100% scams, vehicles won't explode on me, etc.
    - gdsdfe 5y ago
      I'm not saying it should be a free for all on everything, I'm saying we should have leveled playing field when it comes to investment and the opportunity for people to better their lives ... why only a handful of people have the opportunity to make a 100x investment and not others ? because of risk?! well investing in the stock market is also a risk ... everything is a risk! the solution is to make sure people understand these risks and have the tools to hedge against them. like if I go bungee jumping I know for a fact that one of the outcomes might be death but I should be able to assess for myself what are the chances of that happening I do NOT want the government forbid bungee jumping because I might die.
deleted 5y ago
[deleted]
dahfizz 5y ago
> the untaxed amount in an IRA should be capped. Why? The money that goes into an IRA already has income taxes taken out.

IncRnd 5y ago

Taxes are paid prior to depositing into a Roth IRA. So, what additional taxes would you expect to be paid if there were no Roth IRA involved? Taxes were already paid.

dna_polymerase 5y ago
Usually capital gains taxes would apply.
not33 5y ago
I doubt that $5B didn't get there without any growth after taxes were paid. If there were no Roth IRA, any capital gains would be taxed.
- IncRnd 5y ago
  Yes, capital gains taxes would be paid without a Roth IRA. Similarly, if the funds will be used prior to 59 1/2 from within a Roth IRA, then capital gains will still be paid. If there is an early withdrawl, then there is an additional tax penalty. An IRA protects the owner from capital gains, because the funds aren't being used. I think the point is that the Roth IRA was used in the exact way it was designed and how anyone can use one.
sjg007 5y ago
In this case the difference between FMV and strike was $0 so no taxes were actually paid at all.

dna_polymerase 5y ago

The accounts are capped at a contribution of $6000 to $7000 per year. Thiel turned $2000 into this amount. I don't see the systemic problem here. And I see the government's entitlement to taxes on that even less. Whatever Thiel is like as a person, as a businessman he has been connected to the big things in the past two decades like no one else. Give the man a break. Also, I love these hit pieces on Forbes and the other news sites, followed by a native advertisement. "F! the capitalist for making money, but really give us money"!

TrueGeek 5y ago
> Thiel turned $2000 into this amount Is there a history of what trades he made and over what period? A $2k investment to $5B is insane.
- jeremysalwen 5y ago
  You can actually put ~50k per year into a Roth ira using the mega backdoor technique. Still impressive.
- spamizbad 5y ago
  The "trick" is you put your near-worthless startup stock into the fund before any major valuations. So when your company shares are worth $0.01 or whatever, you put in a few thousand dollars worth of them each year before you valuation skyrockets. Assuming the company goes public, the shares stay in the Roth. IANAL but I assume you lose Roth benefits and probably pay some penalties if the company gets sold for cash.
  - nrmitchi 5y ago
    As discussed previously, this "trick" is actually explicitly not permitted, because you could do something like say "My stock is only work $0.001 each ;)" while simultaneously selling to investors are orders-of-magnitude higher valuations. I mean, let's be real: the argument in defense of this is that Thiel bought his founders shares at "a fair value". There were 3 original founders, so the argument is that the company had a fair value of.... ~$5k? > you put in a few thousand dollars worth of them each year before you valuation skyrockets You can't transfer assets into an IRA like this either.

Moodles 5y ago

I think Mitt Romney famously has a lot in his Roth IRA in a similar way [1]. As others have said, it's not actually illegal so I think pointing fingers at individuals who do it (for themselves, their families, etc.) is wrong. If you think it's immoral, go after the people writing the tax codes because 100% if I had the option I would do the same. You'd honestly be a fool to not shelter your millions from taxes if you could. Worst case, you could donate it to the government anyway. Or, donate to a charity of your choice. Or, give it to your kids. Why on Earth wouldn't you legally avoid tax if you could? Also, if you think this should be changed, what should the law be, exactly? You're not allowed to make insane profits in a Roth IRA? Why? Or you're only allowed certain types of investments (like index funds?) in a Roth IRA? In my opinion (and it is an emotional judgement), I think America is based on freedom, and Roth money is money you already paid taxes on, and you should be allowed to invest it however you want. It's your money after all. And I say this as someone who literally only invests in boring index funds myself. [1] https://www.theatlantic.com/politics/archive/2012/09/whats-really-going-on-with-mitt-romneys-102-million-ira/261500/ https://www.theatlantic.com/politics/archive/2012/09/whats-r...

nr2x 5y ago
Pointing fingers at it is how you get public attention to the problem, which may lead to demands for change, which is the purpose of accountability journalism in a democracy.
nomoreplease 5y ago
The easiest solution is to cap at a maximum value for Roth (post-tax) purposes. Pick a number ($50M, $100M, $200M), and anything over gets taxed at traditional rates. You can only put in $6,000USD/year into an IRA, so it's absurd for anyone to pretend a return of $1B USD+ is acceptable. $6k/yr for 30 years at a very-high interest rate of 15% results in $31.3M .. so capping Roth-value at $50M will prevent extreme abuse. Though, I suspect many will argue for a lower cap
- Moodles 5y ago
  I think the UK has a similar policy with pensions with a cap around £1m. Not saying it's a good or bad idea as I really havn't studied the economics of it, but other countries definitely do it. Though a UK pension is more like a 401(k) (pre tax) than a Roth (after tax).

skeeter2020 5y ago

A government program with unintended consequences? What are the odds? There are a lot of things to dislike about Peter Thiel, maybe even enough to dislike the person, but this is not one of them.

ethbr0 5y ago

Good for him. Of all the US retirement schemes, Roth seems like the simplest promise. Put after tax money in, and we promise not to tax it on the way out. And we'll limit some obvious loopholes to abuse Roth investing (e.g. UBI).

adolph 5y ago

5 days ago on HN: https://news.ycombinator.com/item?id=27616090 https://news.ycombinator.com/item?id=27616090

deleted 5y ago

[deleted]

HWR_14 5y ago

If I buy a house with my Roth IRA and fix a window the whole thing loses tax-exempt status. You're not supposed to able to have your Roth benefit from your labor - just capital investment. Thiel invests in PayPal as a Roth IRA at a founder-level price as it's starting up, and that seems equivalent to me. If I use non-Roth funds to pay someone to a fix a window, I also lose tax-exempt status. Even if the Roth pays it back it's a loan. Thiel had already loaned $100,000 to PayPal. Given that shortly after Theil's Roth's investment they closed funding with multimillion dollar valuations (instead of the tenth a cent a share he paid), I'm not sure that valuation really was a fair market value. Especially since they were priced as "founder's shares". So how did Thiel not do something wrong with a retirement account legally required to be conducted at arms-length from him?