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

Re: Self directed IRAs under attack in proposed tax bill

#201

Post by CPLX » Thu, Oct 07, 2021, 4:22 PM UTC

indymike wrote: post #161

idiotsecant wrote: post #133

Earlier quoted context omitted.

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 business…

It doesn't ban anything at all.

It just refuses to give you a tax break when you do it.

Re: Self directed IRAs under attack in proposed tax bill

#202

Post by throwaway210222 » Thu, Oct 07, 2021, 4:23 PM UTC

ClumsyPilot wrote: post #177

javert wrote: post #24

Earlier quoted context omitted.

Nah, the 401(k) system is a mechanism of wealth extraction for white collar government-adjacent workers. It's a form of repression. I'd rather be building something than dealing with tax, but I'm very much incentivized to do the latter (though your situation may differ).

Repression is criminalisation of Solidarity Strikes, entrenching corporate power. Everything else is a waste of time, plastic straw ban of lawmaking. https://en.m.wikipedia.org/wiki/Solidarity_action

This only works if the employers don't see it coming.

In many countries (like mine) organised labour has a wage negotiation-followed-by-industry-wide-strike season. Every year, come rain or shine.

Industry has long responded by: a) adjusting their 'final price' to accommodate the theatre b) automating whatever they can c) scheduling plant maintenance d) learning which jobs can be eliminated and doing so.

All without paying a cent in wages.

Since they seldom get all this done inside 6 weeks, its takes the labourers years to recover even a 5% increase.

Many (mining, paper, logging, hospitals) even budget for it.

Re: Self directed IRAs under attack in proposed tax bill

#203

Post by caseysoftware » Thu, Oct 07, 2021, 4:24 PM UTC

anamexis wrote: post #153

idiotsecant wrote: post #133

Earlier quoted context omitted.

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…

I don't think too many "peasants" have LLCs so they can use their IRAs to invest in crypto.

There are companies like Rocket Dollar that handle the paperwork for you for $15/month.

Not mainstream but not a secret either.

Re: Self directed IRAs under attack in proposed tax bill

#204

Post by rendang » Thu, Oct 07, 2021, 4:24 PM UTC

frockington1 wrote: post #96

darkerside wrote: post #30

The whole article is predicated on the lie that low and middle income earners are buying private placements and LLCs in their IRAs. They are not. Full stop.

What is "Full stop"? I'm seeing it used more and more in political internet discussions

It's the British English term for "period", as in the punctuation mark.

Re: Self directed IRAs under attack in proposed tax bill

#205

Post by CPLX » Thu, Oct 07, 2021, 4:24 PM UTC

lmeyerov wrote: post #181

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…

The big thing I heard about is this ends QSBS, which stinks for founders: something like 15-20%+ of your company's value. Worse, it's a retroactive tax, meaning taxing founders who started the journey with that in mind. Talk about rich senators punching down vs encouraging company formation! PSA: If you are starting a US company and haven't heard of QSBS.. look into it at the federal + state levels, as that's a good…

As a founder I'll certainly take advantage of QSBS if it's relevant to me in the future. But let's not delude ourselves -- it's wildly unfair as a tax break. The primary use of it seems to be allowing angel investors to literally pay no taxes whatsoever on millions of dollars in windfall profits.

Re: Self directed IRAs under attack in proposed tax bill

#206

Post by nodesocket » Thu, Oct 07, 2021, 4:25 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…

> My retirement fund benefited enormously from the Q3 2020 crypto market gains, which would not have been possible without my LLC.

I have a single member LLC and a simplified employee pension plan (SEP), but don't understand how one gets crypto into a SEP without buying something like Grayscale (GBTC) through the open stock market.

Re: Self directed IRAs under attack in proposed tax bill

#207

Post by ska » Thu, Oct 07, 2021, 4:25 PM UTC

loourr wrote: post #179

ska wrote: post #150

Earlier quoted context omitted.

Does it restrict you from doing those things, or only restrict you from doing it in a tax-free/tax-advantaged way?

It restricts you from doing them within retirement accounts. But the purpose of retirement accounts is to effectively save for retirement. Congress is basically saying we want you not to need us but we don't actually want you doing well with your investments.

> It restricts you from doing them within retirement accounts.

I'm not saying it's a good bill (no opinion, not enough info), but it isn't prima-facie crazy for congress to revisit retirement plans if they have evidence they are often being used for other purposes, or ineffectively.

Re: Self directed IRAs under attack in proposed tax bill

#208

Post by caseysoftware » Thu, Oct 07, 2021, 4:26 PM UTC

cma wrote: post #120

mikeyouse wrote: post #46

Earlier quoted context omitted.

More recently, ProPublica showed that Peter Thiel (and others) did the same thing. Thiel amassed $5 Billion into an IRA that's nominally capped at $6k/year in contributions. https://www.propublica.org/article/lord-of-the-roths-how-tec...

Did he use the mega-backdoor contribution thing, or did he grow it from a tiny amount?

He invested the entire amount ($1700 at the time, iirc) into his new startup before they'd raised any money: Paypal.

Then used the proceeds from that to invest in variety of things, including an early (angel?) investment in Facebook.

It's all detailed in the Propublica story where they described his Paypal investment as a "sweetheart deal".

Re: Self directed IRAs under attack in proposed tax bill

#209

Post by indymike » Thu, Oct 07, 2021, 4:26 PM UTC

CPLX wrote: post #201

indymike wrote: post #161

Earlier quoted context omitted.

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 business…

It doesn't ban anything at all. It just refuses to give you a tax break when you do it.

This is an effective deterrent, and would likely be enforced with a tax penalty. edit: By not allowing me to have the tax benefit, you effectively reduce the incentive to invest in my own business. This seems like a law that is aimed at fat cats that will miss, largely because fat cats aren't going to be investing out of their own retirement. On the other had, my neighbor just used $80K of his 401K to buy three vans for a new HVAC repair company. Had that been taxed, he would have had enough for one, maybe two vans, and been on a much worse cash flow trajectory.

Re: Self directed IRAs under attack in proposed tax bill

#210

Post by wahern » Thu, Oct 07, 2021, 4:26 PM UTC

lotsofpulp wrote: post #172

wahern wrote: post #170

Earlier quoted context omitted.

> 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.…

> 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. Exactly, but DB pension funds are not regulated by insurance commissioners the way insurance companies that sell annuities ar…

All good points. Except I'd say that a major problem with annuities is one of bargaining power and purchaser sophistication, similar to why employer-based health insurance plans are better deals then open market plans even after Obamacare reforms. (Though HMOs like Kaiser seem to have a smaller gap.)

Annuity return rates suck relative to pensions and especially stock market returns (ignoring potential long-term risk). But I have the impression that if you're rich or if you're part of a group effort, the returns get better, much like any other class of financial instrument. But I don't actually know if that's true; never looked into it.

Similarly, if your annuity terms are bargained by a sophisticated party on your behalf, you'll likely end up with a more optimal cash vs future benefit balance. Whereas if the decision is left up to you, you'll do what the vast majority of people do, which is favor cash. And favoring cash is something even a financially conservative, risk-averse person might do, because to laymen "conservative" means cash in hand. Just a few weeks ago my dad explained to me that he wanted to cash out his old union-provided annuity and stuff the money in a mattress because he was concerned about Biden/Pelosi policies driving higher inflation. I wanted to be like, "WTF!?"[1], but I long ago learned not to argue with cranky old men, though I'm well on my way to becoming one. (It was a tiny annuity, anyhow, started only a few years before he retired. Definitely not worth lecturing anyone over.)

[1] Because almost certainly the annuity was inflation adjusted.