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

Re: Self directed IRAs under attack in proposed tax bill

#221

Post by dehrmann » Thu, Oct 07, 2021, 4:43 PM UTC

caseysoftware wrote: post #208

cma wrote: post #120

Earlier quoted context omitted.

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".

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.

Re: Self directed IRAs under attack in proposed tax bill

#222

Post by the_optimist » Thu, Oct 07, 2021, 4:43 PM UTC

selykg wrote: post #199

the_optimist wrote: post #171

Earlier quoted context omitted.

This entirely fails to explain how 1) this a loophole 2) how this has disparate impact, and the sad punchline of your statement is “pay your fucking fair share” which you say to people who have saved and invested successfully, without regard to those who would hope to do so in the future. How exactly do you hope to create better opportunities for the low and middle income class? Here’s one idea: open up opportunities…

I don't think you understand how this is being used as a tax loop hole. Please go read here: https://www.propublica.org/article/lord-of-the-roths-how-tec... This type of opportunity is NOT available for low to middle class families, never will be. It's simply being exploited by the rich. These families live paycheck to paycheck more often than not, they're not going to have the ability to invest shares of a company o…

I understand this very well and have know this all well before pro publica showed up. It’s not a loophole. It’s a qualified retirement account. Ho-hum, big time. Find some great ways to enable low income people to become wealthy instead of whining about how they have to eat dirt.

Re: Self directed IRAs under attack in proposed tax bill

#223

Post by ac29 » Thu, Oct 07, 2021, 4:43 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.

> we don't actually want you doing well with your investments

No, its saying if you do well on certain types of investments you need to pay tax. If you do poorly on your investments and lose money, you'd actually want them in a taxable account (because you can count the losses against other gains).

Re: Self directed IRAs under attack in proposed tax bill

#224

Post by Grim-444 » Thu, Oct 07, 2021, 4:48 PM UTC

c54 wrote: post #94

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…

This seems… fine? And a lot less FUD-y than the original article. I find that talk of the “freedoms” being taken away often is propaganda by the corporate interest youre paying to exercise the supposed freedom

Well you can't deny that options are being taken away for a portion of citizens. I stopped doing more than the minimum match into my 401K a long time ago because I could no longer trust that in 30, 40, 50 years nobody wouldn't have come after it as an easy target. It's kind of like gun control (which isn't a good analogy since it's too politically charged) - you're pointing at one restriction and saying "hey, it's not the end of the world, you can still own guns, this probably doesn't even affect you personally", but then a new restriction, law, permit, tax, ruling, regulation, is passed every 6 months from that point on every year for decades on end, every time pointing to the change as just a small little thing that probably only affects a small portion of people. Every time gaining more and more precedence for more restrictions and overall adding them all up having a much more massive impact than just a small change that only affects certain people.

Re: Self directed IRAs under attack in proposed tax bill

#225

Post by ac29 » Thu, Oct 07, 2021, 4:50 PM UTC

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”?

$5B is more than the GDP of several dozen countries. I dont think that was the intent of the law.

Re: Self directed IRAs under attack in proposed tax bill

#226

Post by mariojv » Thu, Oct 07, 2021, 4:54 PM UTC

CincinnatiMan wrote: post #111

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…

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…

You are right, I missed that. This does mean there's an impact on folks making above the Roth income limit but below $400k. Updated the post, thanks

Re: Self directed IRAs under attack in proposed tax bill

#227

Post by lotsofpulp » Thu, Oct 07, 2021, 4:54 PM UTC

wahern wrote: post #210

lotsofpulp wrote: post #172

Earlier quoted context omitted.

> 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)…

> 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.

Health insurance, like life insurance and annuities, is pretty efficient already with low single digit profit margins.

Average annual employer sponsored insurance is $7,675 for single PPO coverage in 2019:

https://www.kff.org/report-section/ehbs-2019-summary-of-find...

And average lowest cost monthly gold premium on healthcare.gov is $516 ($6k annual) in 2019:

https://www.kff.org/health-reform/state-indicator/average-ma...

> Annuity return rates suck relative to pensions and especially stock market returns (ignoring potential long-term risk).

Ignoring the main risk of an investment certainly makes it cheaper. That is what we have been discussing these past few comments. Once those risks are taken into account, by legislation like PPA 2006, the time shifting of costs into the future becomes more difficult and is one big reason why DB pensions are not tenable.

Although, at this point, I would argue an even bigger reason is that they simply have been obviated (same for annuities by insurance companies). Why pay an insurance company a cut of your investment returns when you can get rock bottom expense ratios on target date funds from Vanguard or buy VOO? That is what all these DB pension fund managers and insurance companies are doing anyway. Same reason why whole life insurance is a scam. All of these products have been automated and their middlemen bypassed.

Re: Self directed IRAs under attack in proposed tax bill

#228

Post by wahern » Thu, Oct 07, 2021, 4:55 PM UTC

ghaff wrote: post #191

wahern wrote: post #160

Earlier quoted context omitted.

The answer to that shift in employee tenure is simple: shift away from employer managed pensions to independent management, same as for health insurance. That shift was incomplete because corporate focus shifted to draining pensions and centering compensation packages around mechanisms that favored management and especially executives (401(k)'s, stock options, etc), not adapting pensions to employment trends.

But, now, if you have a widespread defined benefit pension that's largely independent of employment, don't you now have effectively a shadow version of Social Security?

Yes, except it has less systemic moral hazard since the insurer can't [directly] print money and/or issue endless amounts of debt.[1] I'm not a Social Security cynic; I believe it serves a crucial but limited role in providing economic security.

[1] Not per se a horrible thing, but that ability is better preserved for infrastructure and other discretionary investments rather than retirement.

Re: Self directed IRAs under attack in proposed tax bill

#229

Post by jfrunyon » Thu, Oct 07, 2021, 4:55 PM UTC

> has $5 billion socked away in a tax free Roth IRA

How? You can only contribute a maximum of $7,000/year to all IRAs you own.

Re: Self directed IRAs under attack in proposed tax bill

#230

Post by colinmhayes » Thu, Oct 07, 2021, 4:57 PM UTC

the_optimist wrote: post #190

colinmhayes wrote: post #34

Earlier quoted context omitted.

Restricting the freedom to dodge taxes...

Same exact $ amount as in a 401(k). This is only about power and control.

The problem is that he sold himself hundreds of thousands of dollars of stock for $5000. Yes, he wouldn't be able to do that with a 401k, but the point isn't about power and control, it's the fraud he commited.