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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

#261

Post by ryandrake »

paulclinger wrote: post #260
ryandrake wrote: post #124

Earlier quoted context omitted.

> 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?

It admittedly depends on a rather broad definition of a tax increase. The future gains from those contributions invested today are not subject to taxes due to them being in a Roth account, but with this legislation, one would need to make those gains outside of a Roth, and thus those gains would be subject to taxes.

Re: Self directed IRAs under attack in proposed tax bill

#262

Post by UncleMeat »

streblo wrote: post #250
UncleMeat wrote: post #242

Earlier quoted context omitted.

If there is no benefit to the IRA, then why are you upset? Tax breaks exist to promote prosocial behavior. Getting people who are struggling to be able to afford to save for retirement is good for society. Giving people who made it big with a lucky gamble a benefit is just good for that individual.

In this case it's good for the individual without being detrimental to society.

Why have taxes at all, if this is your argument?

Re: Self directed IRAs under attack in proposed tax bill

#263

Post by caseysoftware »

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…

> Thiel bought his shares at $0.001/share in the same round where the company was valued at $0.20/share.

The strike price and the "fair market value" are often different so there's nothing exceptional or even unique there. Odds are, half the people reading this thread have had the same situation in their careers. The difference is that this company (Paypal) ended up working so those shares became valuable.

If you or I did it, we'd pay the strike price, it'd be reported to the IRS at the FMV, and we'd pay the tax on the difference. In this case, it would be some percent (22? 25?) of 1.7M*(0.20-0.001) or ~$338k.

Of course, from there you get into the "unrealized gains" battle that screws over people with illiquid shares.

Re: Self directed IRAs under attack in proposed tax bill

#264

Post by nullc »

lotsofpulp wrote: post #169
joshgachnang wrote: post #93

Earlier quoted context omitted.

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.

Also increase the contribution limits to the hard maximum including employer contributions (e.g. $64.5k/yr) or eliminate them entirely then just cap the maximum post-tax value of your total tax advantaged accounts and require payouts above the caps.

The maximum value cap should be indexed to your age (and inflation), such that the maximum allowed is enough that if left alone can support a very well funded retirement anywhere in the country with very high probability.

Re: Self directed IRAs under attack in proposed tax bill

#265

Post by nullc »

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 401ks will still enjoy better legal protections in states that don't absolutely protect IRAs.

Re: Self directed IRAs under attack in proposed tax bill

#266

Post by sokoloff »

wahern wrote: post #243
sokoloff wrote: post #195

Earlier quoted context omitted.

There are multiple types of risks in financial instruments. Risk of loss of principal is only one of them. Risk of underperforming inflation is better addressed by equities than annuities. If there was one single "best" investment for everyone, everyone who was well-informed would just buy that. For me (and I think many others), an annuity that ends at death is not my primary goal when considering how to arrange my i…

The larger debate is fundamentally about how policy should channel people to maximize the public good in which equitable outcomes are a crucial component. To my mind, Social Security, pensions, 401(k)s, and the like can all play a part. My larger point about pensions specifically is that there's nothing inherently less risky in pensions from a purely accounting perspective. Actuarial tables were astonishingly precise…

> My larger point about pensions specifically is that there's nothing inherently less risky in pensions from a purely accounting perspective.

For the recipient of an earned pension, there is substantially less volatility in future payout (as compared to defined contribution plans). There is some value in that for the individual. For people who are capable to save more than the minimum required in a personal account, an annuity is on-average worse than their own diversified portfolio of mostly equities. But for people saving/earning the minimum pension, capping downside risk has a pretty large benefit and, at least in that sense, I would say pensions are "inherently less risky".

Re: Self directed IRAs under attack in proposed tax bill

#267

Post by lotsofpulp »

BeFlatXIII wrote: post #254
the_optimist wrote: post #216

Earlier quoted context omitted.

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 po…

“They” tried, but insufficient politicians supported it. Everything about ACA was as that it was a compromise to even get that much. The only other option was to not have had healthcare reform at all. I think ACA will go down in history as a pretty impressive effort that at least did something to increase the number of people with access to healthcare.

Re: Self directed IRAs under attack in proposed tax bill

#268

Post by oceanplexian »

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…

I like how we are all pretending that mutual and index funds are also not a casino.

Re: Self directed IRAs under attack in proposed tax bill

#269

Post by vdqtp3 »

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…

Maybe you should just let people do what they want with their own money.

Re: Self directed IRAs under attack in proposed tax bill

#270

Post by chrisjc »

TuringNYC wrote: post #69
boogoob wrote: post #55

Earlier quoted context omitted.

Given the relatively low cap on IRA contributions, it's not directly an issue of income, but rather your access to high-return investments like early-stage stock options. Of course, someone with lots of investments will have the luxury of just making the highest-payoff ones with their IRA funds. Independently, in the rest of the bill [1] there are lots of reasonable things like a $10 million IRA cutoff limit. 1) http…

401ks can be rolled into IRAs, which people do to avoid poorly-chosen high-fee ETFs often found in 401k plans. For example, my employer's plan had 0.5% annual fee index funds when the same could be found for 0.05%. 401k limits are ~20k/yr -- about 10% of your pre-tax if you are maxing out on a 200k SWE TC (or much less given an employer match). Easily, your 401k (and rolled over IRA) can reach 200k (20k x 10) in a de…

401k limits are about $58k per year... You can only personally contribute up to about $20k per year. There are ways to take advantage of the difference such as employer matching and after-tax traditional 401ks (and instantly convert to Roth money).

This is also a way of contributing to a Roth (IRA?) if you don't qualify for a regular Roth IRA (make too much money) or want to contribute more than the $6k limit per year.

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