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Self directed IRAs under attack in proposed tax bill

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Re: Self directed IRAs under attack in proposed tax bill

#251

Post by pnutjam »

refurb wrote: post #176
300bps wrote: post #53

Earlier quoted context omitted.

I'm actually pretty fiscally conservative but I think it's ridiculous that someone abused the intent of a Roth IRA by accumulating $5 billion into it. The whole purpose of IRAs is to encourage regular people to save for retirement. It was not meant to provide billionaires tax loopholes to avoid paying millions or even billions of dollars in taxes. It's kind of like playing a game with someone. 99% of the people are f…

Making a lucky investment is “abusing the intent”?

yes

Re: Self directed IRAs under attack in proposed tax bill

#252

Post by PaulDavisThe1st »

the_optimist wrote: post #183
PaulDavisThe1st wrote: post #165

Earlier quoted context omitted.

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.

You’re missing the point. In all accounts you are either taxed now or later. The exact same amount of $ value in incremental capital gains are untaxed in all qualified accounts, by design and intent.

One of us is clearly not correctly informed about this.

Traditional IRA: contributions are pre-tax, tax paid upon withdrawal. Theory is you will contribute more to avoid taxes while earning, compound growth works to your benefit, but now pay taxes on the full amount in the IRA as you withdraw it.

Roth IRA: contributions are post-tax, no tax paid on withdrawal. Conventional theory for typical earnings level is that you will be in a higher tax bracket when you start withdrawing then when contributing, so pay the taxes up front, let compound growth do its thing, then take out the entire amount with no taxes.

Ergo, if you can get contributions into a Roth that you know will show enormous amounts of gain, you're going to be able to pull that out entirely tax free. That would not be true for a traditional IRA or 401k, where you will pay taxes as you withdraw.

Re: Self directed IRAs under attack in proposed tax bill

#253

Post by PaulDavisThe1st »

the_optimist wrote: post #175
PaulDavisThe1st wrote: post #162

Earlier quoted context omitted.

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.

That’s also incorrect. If he could have done this in a 401k he would have Exactly the Same amount of money.

He would owe taxes on the amount when he withdrew it from the 401k or traditional IRA. He will not owe taxes on it the gain occured while the stocks are in a Roth IRA.

Re: Self directed IRAs under attack in proposed tax bill

#254

Post by BeFlatXIII »

the_optimist wrote: post #216
lotsofpulp wrote: post #169

Earlier quoted context omitted.

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.

This is the best idea. Having employers involved in healthcare and retirement is really crummy. These vestiges of history have been corrupted into massive handouts to the insurance and financial industries, and there is no reason they need to exist.

My #1 problem with the Affordable Care Act was that it tried to mandate universal health insurance coverage while leaving employer-sponsored insurance in place. If they were going to mandate that we urinate our money away to insurance companies (rather than assess an honest tax for single-payer healthcare), they should have prohibited employer-sponsored healthcare benefits to force everyone into the same insurance pool.

Re: Self directed IRAs under attack in proposed tax bill

#255

Post by drocer88 »

lordentropy wrote: post #174
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…

The traditional IRA and 401k were introduced in 1974, the Roth IRA in 1997. They were never intended for rich or poor people to speculate in risky one-off investments. How does this rule set the US back 250 years?

https://en.wikipedia.org/wiki/401(k)#History : "Congress [... enacted the ...] Internal Revenue Code Section 401(k) as part of the Revenue Act.[8] This occurred on November 6, 1978."

Re: Self directed IRAs under attack in proposed tax bill

#256

Post by DesiLurker »

toomuchtodo wrote: post #189
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…

> My retirement fund benefited enormously from the Q3 2020 crypto market gains, which would not have been possible without my LLC. We probably shouldn't encourage the general public to gamble their retirement funds in a casino. I understand many believe this is an "asset class", but there is ample evidence crypto has no place in someone's retirement asset mix. Such investment in a taxable account is reasonable compro…

while your heart is in right place, Govt should not be allowed to single out a particular asset class from retirement. they should rather be in business to regulate and minimize fraud in that class. if crypto is out the so should gold etfs be.

Re: Self directed IRAs under attack in proposed tax bill

#257

Post by drocer88 »

mikeyouse wrote: post #235
dehrmann wrote: post #221

Earlier quoted context omitted.

There's a huge survivorship bias with this. He put his IRA on 00 and it hit, but most of the time, it won't, and most people wouldn't take that bet. This is a lot of effort to solve a non-problem that got press coverage.

It seems strange to describe it as a "non problem" when he's successfully evaded something like a billion dollars in taxes. Romney did the same. Certainly many others have as well. Thiel bought his shares at $0.001/share in the same round where the company was valued at $0.20/share. At very least, he should've been capped at 10,000 shares in the IRA but instead he contributed 1.7 million ($2k/year IRA contribution li…

Romney's was in a regular IRA. He delayed taxes. Withdrawals are taxable as regular income. If he was really smart, he would have done it outside his IRA and paid the taxes on the lower capital gains rate.

Re: Self directed IRAs under attack in proposed tax bill

#258

Post by paulclinger »

FooBarBizBazz wrote: post #194
CincinnatiMan wrote: post #111

Earlier quoted context omitted.

I think you may be wrong on point 3. > Furthermore, this section prohibits all employee after-tax contributions in qualified plans and prohibits after-tax IRA contributions from being converted to Roth regardless of income level, effective for distributions, transfers, and contributions made after December 31, 2021. This makes it sound like backdoor will be stopped for everyone, since after-tax contributions to a (Tr…

If this happens, maybe 401k providers will lose business. People often have reasonably large traditional 401ks, which they don't roll over to traditional IRAs, because having traditional IRAs interferes with the backdoor Roth (and they don't want to do a Roth conversion, because that would be a taxable event). But if backdoor Roths went away, then there'd be no reason not to roll a traditional 401k into a traditional…

The rule of 55 (https://www.thebalance.com/what-is-the-rule-of-55-2894280) may still apply, which relies on a separate 401k balance.

Re: Self directed IRAs under attack in proposed tax bill

#259

Post by JohnJamesRambo »

UncleMeat wrote: post #25
JohnJamesRambo wrote: post #16

I really hope this doesn’t go away. My self directed IRA in Bitcoin has led me to prosperity. There was no other way to do it with my retirement funds really.

You've already won then. Why complain?

I’d like others to win.

Re: Self directed IRAs under attack in proposed tax bill

#260

Post by paulclinger »

ryandrake wrote: post #124
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…

> 3. Closes the backdoor Roth IRA ( https://www.bogleheads.org/wiki/Backdoor_Roth ) only for people making over $400k. Closes the mega backdoor ( https://www.bogleheads.org/wiki/Mega-backdoor_Roth ) for everybody. Just a nit-pick of your analysis. The proposed legislation closes both the megabackdoor Roth (employee after-tax contributions) and backdoor Roth (prohibition on IRA contributions from being converted) rega…

I'm curious why would this increase taxes if those contributions that get converted are after-tax anyway and the amount that gets taxed shouldn't change?
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