Self directed IRAs under attack in proposed tax bill • Hacker News Board

Re: Self directed IRAs under attack in proposed tax bill

#161

Post by indymike » Thu, Oct 07, 2021, 3:47 PM UTC

idiotsecant wrote: post #133

mmd45 wrote: post #88

Earlier quoted context omitted.

The killer is the "The bill also prevents investing in an entity in which the IRA owner is an officer." which is generally how the checkbook IRA is structured (IRA owner is the Manager of the single member LLC that is wholly owned by the IRA). Sec. 138314. Prohibition of Investment of IRA Assets in Entities in Which the Owner Has a Substantial Interest. To prevent self-dealing, under current law prohibited transactio…

This is the killer, indeed. Checkbook IRAs are amazing retirement tools if you're interested in using some of your retirement money in high-risk, high-reward investments. My retirement fund benefited enormously from the Q3 2020 crypto market gains, which would not have been possible without my LLC. It's hard to see this as anything other than removing all the peasants from the market so that the big dogs can have it…

This effectively bans you from making a retirement investment in yourself - and takes a great deal of money off the table for innovation. So many companies are seeded with capital of a person putting 401K money into their own company. The retirement fund and the home are really what most people have to use to create businesses. Frankly, this sets the US back 250 years, and bars the middle class from starting businesses.

Re: Self directed IRAs under attack in proposed tax bill

#162

Post by PaulDavisThe1st » Thu, Oct 07, 2021, 3:48 PM UTC

the_optimist wrote: post #148

PaulDavisThe1st wrote: post #127

Earlier quoted context omitted.

The income has not been taxed. Thiel purchased securities inside the Roth IRA, and they gained value. Being inside a Roth protects those gains from being taxed. Roth IRAs were not intended to allow unlimited (or even "huge") gains to remain untaxed, which is why they had a low contribution limit. What Thiel did was (and is) not illegal, but it is viewed as an abuse of the intent of a Roth IRA that (some in) Congress…

This is just flat wrong. The income contributed to a Roth IRA is post-tax. It is a retirement account that is economically equivalent to a 401k. The only differences are 1) timing on when the gains are taxed and 2) whether you can self-direct it or not. Saying “not intended to allow” is simply nonsense that covers for the abusive 401k system that fleeces individuals at the benefit of the finance industry.

The "income" in this case is the gains on the stock purchased as part of the Roth IRA, not the income contributed.

Nobody cares about Thiel spending a few post-tax dollars on some wierdly cheap stock. The issue is that this stock grew to be worth US$5B within the Roth.

Re: Self directed IRAs under attack in proposed tax bill

#163

Post by PaulDavisThe1st » Thu, Oct 07, 2021, 3:49 PM UTC

lotsofpulp wrote: post #142

PaulDavisThe1st wrote: post #114

Earlier quoted context omitted.

You pay capital gains taxes on the majority of gains made via investment. This change is intended to prevent the abuse of Roth IRAs as a way to shield potentially enormous capital gains from taxation.

If that was true then they could simply cap the amount that was exempt from taxation.

I agree that this would be an alternate approach to tackling the issue, and to be honest, from what I've read so far, would be my preference.

Re: Self directed IRAs under attack in proposed tax bill

#164

Post by wintermutestwin » Thu, Oct 07, 2021, 3:49 PM UTC

mariojv wrote: post #73

I'd recommend reading the proposed provisions themselves directly from the Ways & Means Committee instead of the main article urging action: https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax... Highlights: 1. You can't add new contributions to tax-advantaged accounts if their total value exceeds $10 million and you make over $400K for single filers, amounts indexed to inflation. 2. There are required minim…

>and still does require a pretty high income (investing more than ~$20k/year in a 401k)

Nearing retirement, earning low income now and have a significant amount of savings in non-retirement accounts = Closing the megaBD Roth screws me.

What should really happen is that anyone with net worth < a reasonable threshold should be able to simply roth what ever the fuck they want without having to figure out these annoyingly complex tax rules.

Re: Self directed IRAs under attack in proposed tax bill

#165

Post by PaulDavisThe1st » Thu, Oct 07, 2021, 3:50 PM UTC

the_optimist wrote: post #148

PaulDavisThe1st wrote: post #127

Earlier quoted context omitted.

The income has not been taxed. Thiel purchased securities inside the Roth IRA, and they gained value. Being inside a Roth protects those gains from being taxed. Roth IRAs were not intended to allow unlimited (or even "huge") gains to remain untaxed, which is why they had a low contribution limit. What Thiel did was (and is) not illegal, but it is viewed as an abuse of the intent of a Roth IRA that (some in) Congress…

This is just flat wrong. The income contributed to a Roth IRA is post-tax. It is a retirement account that is economically equivalent to a 401k. The only differences are 1) timing on when the gains are taxed and 2) whether you can self-direct it or not. Saying “not intended to allow” is simply nonsense that covers for the abusive 401k system that fleeces individuals at the benefit of the finance industry.

Also, I don't know the full scope of 401k's but the one I have is absolutely not post-tax and is equivalent to a traditional IRA, not a Roth.

Re: Self directed IRAs under attack in proposed tax bill

#166

Post by majora2007 » Thu, Oct 07, 2021, 3:50 PM UTC

joshgachnang wrote: post #93

mariojv wrote: post #73

I'd recommend reading the proposed provisions themselves directly from the Ways & Means Committee instead of the main article urging action: https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax... Highlights: 1. You can't add new contributions to tax-advantaged accounts if their total value exceeds $10 million and you make over $400K for single filers, amounts indexed to inflation. 2. There are required minim…

Honestly they should close the backdoor Roth and update the Roth income rules to stop requiring the backdoor Roth. It's annoying to use it as is. Getting rid of the mega backdoor seems like a no brainer since it's a clear loophole. Or if you want to keep something similar, change the Roth contribution limits for everyone.

This is what I'm most bumed on with the mega backdoor and backdoor, but closing them and just opening them for everyone would be ideal. Because you can still contribute to Roth regardless on income level if you know about backdoor, so it makes sense just to legalize across the board.

Re: Self directed IRAs under attack in proposed tax bill

#167

Post by rattlesnakedave » Thu, Oct 07, 2021, 3:51 PM UTC

300bps wrote: post #154

loourr wrote: post #146

Earlier quoted context omitted.

Congress is preventing all people from investing in private companies within retirement accounts, not just rich people. Adding the cap is fine but preventing private company investment is asinine.

Preventing all people from investing in private companies or closing a loophole that the law was never intended to allow? Because anyone can continue to invest in private companies. You just can’t get tax free growth from them.

Ignoring rather or not you should be able to use an IRA to invest in private companies for a moment:

>anyone can continue to invest in private companies.

is a very bold claim.

Re: Self directed IRAs under attack in proposed tax bill

#168

Post by lotsofpulp » Thu, Oct 07, 2021, 3:53 PM UTC

PaulDavisThe1st wrote: post #163

lotsofpulp wrote: post #142

Earlier quoted context omitted.

If that was true then they could simply cap the amount that was exempt from taxation.

I agree that this would be an alternate approach to tackling the issue, and to be honest, from what I've read so far, would be my preference.

Anytime you see politicians avoid a straight forward, transparent solution, for an opaque one, assume there are political games being played resulting in winners and losers.

Just like why a person working for a company offering 401k is allowed to save $19k in a tax advantaged retirement account, but a person working at a small sandwich shop not offering a 401k is only allowed to save $6k in a tax advantaged retirement account.

Re: Self directed IRAs under attack in proposed tax bill

#169

Post by lotsofpulp » Thu, Oct 07, 2021, 3:55 PM UTC

joshgachnang wrote: post #93

mariojv wrote: post #73

I'd recommend reading the proposed provisions themselves directly from the Ways & Means Committee instead of the main article urging action: https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax... Highlights: 1. You can't add new contributions to tax-advantaged accounts if their total value exceeds $10 million and you make over $400K for single filers, amounts indexed to inflation. 2. There are required minim…

Honestly they should close the backdoor Roth and update the Roth income rules to stop requiring the backdoor Roth. It's annoying to use it as is. Getting rid of the mega backdoor seems like a no brainer since it's a clear loophole. Or if you want to keep something similar, change the Roth contribution limits for everyone.

They should close 401k and all other tax advantaged retirement accounts, and just have regular IRA and Roth IRA for everyone, and remove employers from the equation.

Re: Self directed IRAs under attack in proposed tax bill

#170

Post by wahern » Thu, Oct 07, 2021, 3:55 PM UTC

lotsofpulp wrote: post #155

wahern wrote: post #89

Earlier quoted context omitted.

401(k)'s started to became popular in the 1970s because they allowed management to increase their tax-advantaged compensation relative to labor, whereas defined-benefit plans had stricter and more effective rules regarding management/labor compensation disparities. Then during the 1980s as corporate accounting schemes became more sophisticated preference for 401(k)'s and other defined-contribution plans exploded beca…

> But corporate interests have succeeded in selling the narrative that pensions are unreliable and inequitable, while 401(k)'s are more reliable and equitable. In fact pensions are categorically more equitable, and any less reliability (which is a dubious claim, notwithstanding the many high profile pension failures over the years--nobody reports on someone's 401(k) fund vanishing during a recession) is a consequence…

> Those lobbyists must be doing a terrible job, since the Pension Protection Act of 2006 strengthened the reliability of defined benefit pensions.

Pensions were already dead long before 2006, and inevitable future pension failures baked into the system years and decades earlier. And in any event the PPA heavily favored 401(k)'s, the price extracted by Republicans for creating the Pension Benefit Guaranty Corporation. And the PBGC itself also favored corporations. Nothing about the PPA directly addressed the underlying reasons pensions were failing; the PPA was about creating a soft landing.

> The problem is defined benefit pensions are extremely risky for beneficiaries since the existence of an employer decades into the future is a huge risk, as are changes in a world where things change quickly and many people do not stay at the same job for many years.

They're not risky at all. A pension is just an annuity, the corporate equivalent of employer-provided health insurance vs open market health insurance. Annuities, like life insurance, are considered some of the most reliable investments possible, precisely because of relatively strict, century-old reform legislation. See my response elsethread regarding fully funding requirements and the difference between employer vs independent management. Again, this notion that pensions are fundamentally risky is a false narrative. To the extent pensions are risky, it's only because the laws don't adequately address what in other insurance markets would be considered systemic accounting fraud.