Peter Thiel Turned a Retirement Account into a $5B Tax-Free Piggy Bank (2021)

https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank

by nabla9 • 4 years ago

77 98 4 years ago

propublica.org

boringg• 4 years ago

Old news.

siva7• 4 years ago

Thiel is like a super villain straight from a comic. His own republic somewhere in the ocean, his blood boys, his disdain for democracy, where does this end?

dools5• 4 years ago

All economic libertarians are super villains, but think that they're champions of freedom. What's interesting is that, imho, the entire concept of "super heroes" is actually fraught with libertarian ideology. In super hero narratives you have super powerful individuals battling each other, with incompetent governments unable to intervene to keep anyone safe.

rayiner• 4 years ago

Social libertarians are villains too. Both are antisocial, just in different ways. Society decides your role in it and what you owe it and how you can work for its benefit.

andsoitis5• 4 years ago

his blood boys

The desire to use blood transfusions from the young for life extension is very old.

The Ancient Greeks and Leonardo da Vinci wanted to do it too.

Sporktacular• 4 years ago

And so..?

m0llusk• 4 years ago

Seasteading predates Thiel and if anything Thiel's embrace disrupted progress. Stop using Thiel as an excuse to smear whatever he touched.

luciusdomitius4• 4 years ago

“Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State's inhabitants, or subjects.” M. Rothbard :)

JaimeThompson• 4 years ago

It's also, in part, what we pay to have a modern society.

SuoDuanDao• 4 years ago

There's a relevant quote about society being a parasite on the man with the hoe. Though I suspect it was coined by someone who's never tried to build a hoe without a society to help.

bryanlarsen• 4 years ago

"Property is theft". - Proudhon

Both statements have equal validity.

vidarh3• 4 years ago

And indeed, the first person to use libertarianism as the name of a political ideology, Joseph Dejacque, vigourously agreed with Proudhon on that, while he described Proudhon as "moderate anarchist, liberal, but not libertarian".

Rothbard coopted the term, which was then long established.

TheLoafOfBread2• 4 years ago

Well maybe you would change your opinion if private firefighters would arrive to your burning house and told you that they will buy it for 50 EUR, or they will let it burn to the ground. You will lose your hose in both cases.

luciusdomitius4• 4 years ago

I think you need to sign a contract with the firefighters before shit starts burning. Car insurance, health insurance, any similar market driven service would not let you insure AFTER the accident either.

djbebs2• 4 years ago

I wouldn't.

dools5• 4 years ago

Taxation is the foundation of currency, and creates all markets. Without taxes, there is no public purpose, and hence no society, unless you have a society that is sufficiently simple that you can operate it without money.

luciusdomitius4• 4 years ago

So, Kuwait and other tax-free states have no currency or it is unstable? Let me check? Nah, you are lying.

https://www.google.com/search?q=kuwaiti+dinar+in+usd

ramblerman• 4 years ago

There is so much to unpack there. You are conflating trade, value creation, money, government, and taxes in two sentences.

- buyers and sellers (trade) create markets.

- Taxation can happen via either currency or goods.

- Governments manage societies, most happen to fund themselves via taxes.

I'm not sure what you mean by public purpose.

vidarh3• 4 years ago

I'm all for people being able to opt out of paying all taxes, as long as society is free to opt out of all dealings with those who choose to do so, including being free to refuse them access to use any publicly financed facilities, including roads, and the ability to refuse to trade with them.

golergka2• 4 years ago

Don't conflate government with society. Taxes are necessary for the former and have nothing to do with the latter.

lotsofpulp12• 4 years ago

Title should be “US leaders passed legislation that allowed for limitless future tax free earnings if redeemed after age 59.5”.

Propublica does good work, but they reduce their credibility when they put out clickbait to induce rage at a single person playing by the rules. Guess it is easier to get people riled up against one “evil” person than the myriad representatives the populace voted for.

andsoitis5• 4 years ago

I think it can be effective to put a face, so to speak, to an issue to show it isn’t some abstract problem and to also show the degree to which it is a problem.

djbebs2• 4 years ago

People keeping their things is not a problem.

lotsofpulp12• 4 years ago

The wording the article uses is intended to cause outrage at specific people, instead of the badly worded rules and/or the motivations of the people who enacted the rules.

Yet, from the start, a small number of entrepreneurs, like Thiel, made an end run around the rules: Open a Roth with $2,000 or less. Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value. Pay just fractions of a penny per share, a price low enough to buy huge numbers of shares. Watch as all the gains on that stock — no matter how giant — are shielded from taxes forever, as long as the IRA remains untouched until age 59 and a half. Then use the proceeds, still inside the Roth, to make other investments.

I wonder how the author determined PayPal had a “good chance of exploding in value”? Can they predict the future? Or is it using hindsight to make things seem less risky than they were.

Would you recommend a young person today to max out their Roth contribution with the equity of a startup they are working on?

The article also does not mention any of the downsides of Roth accounts.

atonse• 4 years ago

I hate Peter Thiel with a vengeance but had the same reaction as you.

This article was a nothingburger. Alternate headline: “man wins lottery with Roth investments and has to pay no taxes”

Unlike many tax shelters and other billionaire only toys, this Roth stuff is accessible to literally everyone.

If I had put in $5k of Roth money every year into Apple stock I similarly would’ve minted money.

tootie3• 4 years ago

It's one thing to say "a potential loophole exists" to "someone has successfully exploited the loophole on a massive scale already".

vsareto• 4 years ago

There's two things I find worth considering as maybe-wrong:

1) non-public investment opportunities in combination with tax-free status

2) no sanity threshold to collect some taxes after your Roth balance becomes large enough

1 is maybe a violation of the spirit of what a Roth was designed to be used for. You should be able to invest (cash only would be dumb), but you shouldn't get tax free returns for every kind of investment you make. Public shares might be tax free, but using the Roth for venture capital or private investing seems a little wrong.

2 is just silly to me, and I blame lawmakers for that. No one needs $5b tax free, especially since you can't ever reach that with contribution limits.

z9znz2• 4 years ago

myriad representatives the populace voted for

Unfortunately there is not much "myriad" in the candidate choices. To even reach a level of opportunity to compete in an election means to already sell out to some special interests. It just costs too much money to run with any hope of getting elected.

Both parties in the US cater to wealthy supporters, whether those supporters are actual humans, corporations as humans, or PACs. Those who want to protect their wealth spend a lot of money to ensure that all likely candidates will make or modify rules that benefit them.

It is very reasonable for us to direct our ire toward the wealthy individuals who make very public efforts to affect policies (very selfishly). And with the recent tally of $880 million spent by billionaires on the recent midterm elections, it's even more clear where we should direct our attention.

lotsofpulp12• 4 years ago

It is very reasonable for us to direct our ire toward the wealthy individuals who make very public efforts to affect policies (very selfishly)

Sure, but how does that apply in this case? Roth account legislation was passed in 1997, and PayPal was started in Dec 1998.

graphpapa2• 4 years ago

I think it’s still worth being critical of individuals even if they follow all the rules. The super rich have the largest influence on society as a whole. They cast a vote on the status quo by endorsing anti-social policies with their actions. Just because something is legal doesn’t make it right. I’m not arguing any particular consequences etc. whatever. I also agree that ‘news’ which emphasises a misleading causality is not helpful.

Nevertheless, the super rich ‘legally’ avoiding the proportional contribution to society nominally expected of them _because they can_ is still anti-social behaviour and however the laws came to be is irrelevant in my opinion. Democracy is so flawed especially at the individual policy level I consider the argument that ‘the populace voted for this’ conservative in the worst most nebulous way, defending the status quo for no reason other than it is the status quo.

Of course policies that protect the super rich are beyond the normal reach of democracy because lobbying and donations are so prevalent.

Do we approve of this behaviour in a normative sense? That seems like a more important thing to keep in mind than if individual’s playing of the game is technically above board. Or how the rules came about. To me the details of the case amount to details of a symptom and what is of more interest is the underlying condition which is revealed.

FWIW I don’t know the details of the case I’m just trying to nudge the discourse in a direction I find more interesting.

lotsofpulp12• 4 years ago

Nevertheless, the super rich ‘legally’ avoiding the proportional contribution to society nominally expected of them _because they can_ is still anti-social behaviour and however the laws came to be is irrelevant in my opinion.

Why do you put legally in quotes? Is it because you think there was zero downside risk to maxing out a Roth contribution with start up stock? The article conveniently leaves out all the possible downsides.

Seems like the problem is wealth inequality, and going after people who follow the rules (that they had no part in influencing) is a waste of time, and reduced quality of discourse due to decrease in trust.

aww_dang• 4 years ago

Do we approve of this behaviour in a normative sense?

What is the approximate amount of taxes for Mr. Thiel of which you would approve of? How much wealth should he retain?

If a single individual does not have the right to confiscate your wealth, but a collective body does, how many voters are required to confiscate your wealth?

Where exactly is this demarcation point? Is there a limbo zone where the morality of forcible confiscation begins to bend?

MAGZine3• 4 years ago

I agree. I don't think it was the intent for people to amass a multi-billion dollar accumulation in their Roth account. And when we're talking about whether something is "right," or "wrong,"--which different from whether or not if it falls within the rules--I think we can look at the contribution limits as a hint of the intent.

I'd even go as far to say that the $5k/yr contribution limit of Roth account makes it pretty clear that Roth was not supposed to be used to gain tax privilege on vast sums of money.

It's a retirement account. How much money do people need for retirement? 22B? Give me a break.

ramraj075• 4 years ago

They have identified that Blood Boy Man’s Roth alone is twice the size of his previously publicly estimated net worth. And through a tax loophole most normal people have no way of using. And clearly this wasn’t a deliberate loophole , it just got exploited into one. This seems like a good substantial article to me. I’m just curious if there are people here trying to indirectly undermine criticizing our “democracy is untenable” leader here, just like PG is shilling for Elon or Dave Chappelle is asking us to forgive Kanye. Keep moving the Overton window saying they al did nothing wrong it’s the system that’s broken, is that your message?

lotsofpulp12• 4 years ago

And through a tax loophole most normal people have no way of using.

Source? As far as I know, everyone can contribute to a Roth retirement savings account.

And clearly this wasn’t a deliberate loophole , it just got exploited into one.

Are you suggesting Thiel, in 1999, knew for a fact that his $2k worth of Paypal equity, would be worth far more in 2022? In which case, the fair market value of the equity would not have been $2k, and hence Thiel committed fraud?

jrochkind13• 4 years ago

I mean, I agree, and think the law should be changed to have some limits, but I wouldn't have enough info to think the law should be changed if I didn't know specific details about how some individuals are using it.

(Also, what this article only briefly touched upon but others get into more details of -- the way people like this get hundreds of MM in IRAs is by buying early stage stakes that aren't generally available to the public at "pennies per share". Banning these from IRAs would be one way to end this sort of thing).

lotsofpulp12• 4 years ago

the way people like this get hundreds of MM in IRAs is by buying early stage stakes that aren't generally available to the public at "pennies per share". Banning these from IRAs would be one way to end this sort of thing).

They are pennies per share because they are huge gambles worth approximately nothing right now. Anyone can make their own LLC and contribute the max equity into their IRA right now. It just does not make sense for most since it will probably perform worse than buying SP500.

HDThoreaun2• 4 years ago

I don’t think that’s right. Thiel acquired all this money in his Roth IRA by directing his venture investments through it. You need money to make venture investments, and he got the money in his Roth by putting tons of PayPal stock in there. Now the rule is that you can only contribute $6,000 a year to the account, less back then, but thiel put huge amounts of stock in. This all happened pretty much the day before they took millions in funding which would’ve made his stock too valuable to put in the Roth. Imo that is fraud. He knew the stock was worth more than the limit and he still put it in the account. But since the value wasn’t officially set until the next week it’s too much of a hassle to prove that he mispriced the stock to the irs.

The government should still come after him for fraudulently misvaluing his company if the statute of limitations hasn’t expired. There is no chance Peter would’ve sold that stock to investors for whatever the Roth limit was.

prepend• 4 years ago

Roth IRAs are only supposed to be able to purchase publicly tradeable stocks. It will be interesting whether this is investigated because buying founder shares for a penny with your $5k/year limit is not supposed to be allowed.

It’s more interesting the people who actually publicly traded with their small inputs and now have millions per year that they can withdraw tax free.

sokoloff4• 4 years ago

Roth IRAs are only supposed to be able to purchase publicly tradeable stocks.

Citation needed. Investopedia (and the widespread and open existence of self-directed IRAs) disagrees with your claim.

https://www.investopedia.com/articles/retirement/11/impermis...

ramraj075• 4 years ago

As Bill Burr said, “a few decades back you could legally bust your wife’s jaws open”. There’s “it’s legal” vs. “it’s the right thing”

jandrewrogers• 4 years ago

Roth IRAs are only supposed to be able to purchase publicly tradeable stocks.

This is false. A very wide range of investments are allowed, including real estate and derivatives.

astura• 4 years ago

Roth IRAs are only supposed to be able to purchase publicly tradeable stocks.

False, I have no idea where you got that impression- self directed IRAs exist. I actually have one.

https://en.wikipedia.org/wiki/Self-directed_IRA

sokoloff4• 4 years ago

Half of the text in the article feels like whining that someone followed the laws, in many cases (Roth conversions) paid their taxes early and then, in direct exchange, got tax-free treatment on withdrawals.

Imagine a series of multiplications, one of them being 0.80 to the taxpayer and the other 0.20 to the government. Then a series of transactions multiplies that account value by a value less than 1 (for losing investments) or greater than 1 (for winning investments).

Multiplication is commutative. Whether the 0.20 to the government is paid at the start or the end, it seems fair to me. The fact that the government got their money early and did not invest it as well as the Roth account holder is not a tax policy concern in my view.

For every case where a taxpayer invested well and won big, there are thousands of people who made a Roth conversion, paying taxes at that moment, and made investments that went to zero. In those cases, the government got paid more taxes than they’d have gotten without the Roth conversion.

rwmj• 4 years ago

There's a bit of kerfuffle in the UK about "ISA millionaires"[1]. ISAs are similar to US IRAs (Roth? the stocks and shares ones). Basically since they were created in the 1980s, even with the annual investment limits and a boring index fund it has been possible to accumulate over £1 million tax free. You're only allowed to invest in listed companies and there are small annual limits so it's highly unlikely anyone could have made "billions" this way. For example you absolutely could not use this for founder shares.

Everyone expects that one day a total fund limit will be introduced, but not so far.

[1] https://www.hl.co.uk/news/articles/isa-millionaires-how-did-...

sokoloff4• 4 years ago

£1 million isn't some staggering or offensive sum, IMO. As a retirement account, that will throw off £40K/yr with a 4% chance of failure (going broke) in 30 years or maybe £60K with 10% of going broke in 15 years and a 40% chance in 30 years.

£1 million is a completely reasonable retirement savings balance to target (and is lower than my family's own target), especially if you lived your life and want to retire in the most populated urban center in the UK.

ethagknight• 4 years ago

"confidential Internal Revenue Service data shows"

I am most curious about this little detail they just gleeful dropped in. I want THAT thread pulled. Who bribed who to leak this data?

henvic2• 4 years ago

Good for him. Creating wealth making everyone's life better and avoiding his money is used in murdering people overseas in wars or sending people who committed victimless 'crimes' such as trading marijuana to the prison for life.

ramraj075• 4 years ago

It’s more likely than not his investments directly cause more deaths than they would through wars or whatever the American government you allege is doing you disagree with. Saying “I won’t pay taxes because I don’t agree with the government” is sovereign citizen level inanity. Especially because this dude has the power to move to another country anytime but chooses to abuse the system in this country. The least we can do is be objective about it and try to minimize such abuse.

henvic2• 4 years ago

1. Thinking avoiding (legally or not) paying taxes) for not agreeing with what the state does makes you someone who identifies as a sovereign citizen makes no sense. There are more than enough sane moral/ethical reasons why someone might want to avoid that... while still living in society and being a productive member of it. We're constantly sold the statism Kool-Aid that paying taxes is sacred and to turn a blind eye to how the money is used, but this is just not right. 2. He isn't even abusing anything. The state is abusing people's wealth, on the other hand.

jwie2• 4 years ago

All you need to pull this off is ground-floor access to a unicorn startup. The IRA rules are the minor term here.

Anyone could, provided they had an investment that gained as much as Thiel’s, do this.

Maybe there should be lifetime caps on tax protected withdrawals to prevent this kind of edge case, but that’s not how the laws were written.

There are other ways for wealthy to dodge taxes. Invest, borrow, die works slightly worse since you’re paying loan interest instead of capital gains taxes. But it’s still not paying taxes.

So yes, this is kind of interesting, but not that much more effective than the current tax dodging strategies.

lr4444lr2• 4 years ago

Maybe there should be lifetime caps on tax protected withdrawals to prevent this kind of edge case, but that’s not how the laws were written.

This is exactly how to solve this problem, but people would rather get angry at the rich for being rich than think sensibly about it.

jrochkind13• 4 years ago

Or just ban putting those kinds of investments into IRAs. "ground-floor access to a unicorn startup". Nobody that actually needs an IRA to fund a retirement has those kinds of vehicles in them (the vast majority don't have access to such if they wanted to), only really wealthy people using IRAs for a purpose they weren't intended for.

onetimeusename• 4 years ago

how is this done? I looked into the rules and you can't sell options or stocks from companies you have a controlling stake in into your own Roth. Friends and family can't either. I feel like you would have to be in a pretty special and unlikely situation to actually pull this off not even assuming the stock price actually increases much. I could be wrong about that.

jwie2• 4 years ago

I believe you could open a Roth, put dollars in it and buy anything your Roth broker would sell you in that tax protected container.

Exotic offerings are not going to be available to regular people, but if you could get access to bespoke financial product, like some exotic swap or derivative, or something else that would increase in value 1000000% or something else crazy, and you’re all set.

There are specific restrictions to what can go in a Roth, but I think all financial products are allowed.

You can’t put “a lottery ticket” in the IRA and win the lottery with that ticket and have it be tax protected, but only because it’s a physical object like a collectible.

If you do it through stonks though it’s fine the ways the laws are written.

briHass• 4 years ago

This is how it starts... Roth IRAs have always been built on a flimsy promise: pay your taxes now, and pay no taxes later. I strongly suspect in the near future, those individuals that were responsible and actually saved for retirement will be seen as 'cheating the system's because they aren't paying taxes on their sizable Roth balance.

Articles that cherry pick a rare example to cause outrage are attempting to change the rules. Thiel played by the rules and got lucky with his Roth. That doesn't change the fundamental promise of the account.

projektfu• 4 years ago

I'd be interested to know if anything was "backdated", where winners were placed in the Roth after they won but with a date before.

Overtonwindow• 4 years ago

Such as sensationalist, headline, kind of glossing over the fact that it was perfectly legal.

lr4444lr2• 4 years ago

So, super rich guy follows the laws on the books, with no special lobbying to do this and people get upset that this makes him richer.

As a great African American poet once said, "don't hate the playa' - hate the game."

gkfasdfasdf• 4 years ago

Article from 2021

golergka2• 4 years ago

Taxation is theft, and any time somebody manages to get out of it, we should celebrate it. Especially as it contributes to breaking up the system based on violence and theft and paves the road for the rest of us to do the same.

rssoconnor• 4 years ago

People in this thread tend to be supportive of the idea that he is simply playing by the rules. While I have no reason to doubt the legality of this strategy, I question whether it ought to be legally appropriate for Peter Thiel to decide the valuation of his own investment (more or less) by himself. His initial deposit into his Roth IRA doesn't strike me as an arm's length independent valuation. It was simply the par-value of the stock, which AFAIU is a valuation for accounting purposes and not at all an independent appraisal of the stock's value.

That said, when this topic came up last year on Hacker News, it did make me rethink my own personal tax-sheltered strategy. (I'm in Canada, so I'm thinking about TFSA instead of Roth IRA). Before I had been following the advice to shelter my high-tax items, which for Canada would be bonds. But after reading about this, I've rearranged things to instead shelter (hopefully) high growth items (e.g. VTI). The idea being that by growing room in my sheltered accounts I can eventually save more on taxes than I would by sheltering bonds

I'd be interested in other people's comments on tax-sheltered-account strategies for tech workers.

gumby• 4 years ago

I've tried to do this with founder stock over the years and my tax advisors (I switched at one point) both discouraged me from doing so. Not that I would have ended up with billions, but still, a big chunk of change. The nice part is if you do this when your stock is worth pennies you can still make (almost) the entire normal cash contribution, so the risk is low.

Congress keeps threatening to stop this by forcing accounts over some limit to make an immediate withdrawal, with all the negative tax consequences that would result. This pro publica piece implies that they don't think it will ever happen.

dang• 4 years ago

Discussed at the time:

Peter Thiel turned a Roth IRA into a $5B tax-free piggy bank - https://news.ycombinator.com/item?id=27616090 - June 2021 (775 comments)

Peter Thiel Has Accumulated $5B in a Roth IRA - https://news.ycombinator.com/item?id=27675736 - June 2021 (56 comments)

Peter Thiel’s $5B Roth IRA Tax Haven Is the Hottest New Investing Tip - https://news.ycombinator.com/item?id=27743427 - July 2021 (68 comments)

Peter Thiel Turned a Retirement Account into a $5B Tax-Free Piggy Bank (2021)

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