Lockdowns destroyed the common man where the f@#k were you? This is your focus while black people aren't allowed to own guns or have free speech in most places. Vice fell off.
He was one of 3 founders of "Voice of Montreal" in 1994 and was bought out in 1996, when it was renamed Vice. That's...pretty freakin' distant a relationship to object to.
I think he has been firmly dissociated in recent years, especially when he went on Fox or CNN and told one of the other panelists who happened to be female that she’d be much happier in the kitchen
From the Wikipedia article on Vice, at least (and this is all linked to sources), the cofounders -- including McInnes -- bought it back in 2001, and he was actually with them until he left in 2008 due to "creative differences," which I (and others) read as Vice retooling themselves into a more serious news organization while McInnes was retooling himself into an alt-right leader.
Having said that, though, Vice has a pretty clear political slant, and alt-right is definitely not it. So I'm in hard agreement with your conclusion -- I mean, if you object to white supremacist co-founders, Vice kicking theirs out and cutting ties with him would kinda be a net positive, right?
Fair point; I forgot about that. Still, yes, point still stands. They're clearly not alt-right, nor supportive of alt-right causes, nor benefiting alt-righters except the most indirectly (i.e., shareholders/employees, same as any business).
A tax haven is a nation with low to no taxes, where foreigners can operate for tax purposes.
The term you are looking for, and almost had, was "tax avoidance".
Tax avoidance is perfectly legal. It is tax evasion that is illegal.
Investing your Roth IRA in a company your the CEO of like Peter Thiel did is illegal, making this tax evasion.
As to why it’s illegal, selling an arbitrary number of shares in your private company to yourself for 1$ then buying it back from yourself at say 1 billion dollars is normally legal. So, without such limits everyone could move unlimited money into a Roth IRA.
The penalty being low doesn’t prevent this from being fraudulent. Second, the transaction doesn’t need to be unwound for the funds not to be in the Roth IRA.
The timing of his “investment” is also off, he put the funds in after a seed round. Therefore those shares where worth far more than the annual Roth IRA contribution limit.
To you the words “illegal” “tax evasion” and “fraudulent” all may be synonyms, to me they are not. The consequences are the only thing I care about, and there is no authority that could view those words as synonyms. The IRS nor any other part of the executive branch could view it as tax evasion or fraud, the courts could not either, and Congress made this product out of their own desperation. As Congress is still desperate for short term revenues its unlikely they would alter the Roth product.
You can sell shares at arbitrary discounts especially when there are not liquid markets. If stock options are more necessary to circumvent accounting then in the money options can be used as well, with the Roth purchasing the stock options instead of earning it and getting more money in future years to purchase the in the money stock.
If the government wanted an unlimited Roth IRA cap they wouldn’t have added a Roth IRA cap. The fact they added a cap shows clear intent, which is definitely how the courts view such forms of Tax Evasion.
Now the government doesn’t go after the vast majority of criminals be that the IRS, FBI, or your local cops. However, that has no impact on what is or isn’t breaking the law as written. As such this was clearly tax evasion because it’s illegally reducing taxes he would owe and it’s fraudulent activity because it’s falsifying financial records for personal benefit. Hell was likely also wire fraud depending on how he submitted tax documents, not that such charges are normally tacked on to such cases but they still apply.
> He complied with the contribution cap and the income cap that year.
Not if he used am old pre round validation after the investment occurred at a higher valuation as has been reported.
Also your penalties where off: However, if the individual for whom the IRA was established or the IRA’s beneficiary engages in a PT with respect to the IRA, the sanction is the loss of the tax-exempt status of the IRA as of the first day of the taxable year in which the PT occurs.
As such, all transactions after the original transaction lack their tax exempt status. As such based on listed rules and including interest and penalties and he’s potentially facing a multi billion dollar tax bill.
No its not, it's to encourage certain behaviors. In this case saving for retirement by using already taxed income instead of paying those taxes when you retire. You can read the article I linked to below to see how it was abused in this instance.
This sort of fits into the encouraged behaviors though:
Put aside some money for the future.
Invest the money into company stocks, generally.
(Hopefully) having made good investments, have more money in retirement.
Retire and have some tax free money.
Most investments don't apprechiate quite so much, of course, but there were no rules on investment returns, only about contributions (and restrictions on self-dealing which may very well apply)
Yes, I’ve read that article. It essentially boils down to the author insinuating that all wealth must be the product of some nefarious scheme and that these people who simply followed the law some how did something wrong. Very biased reporting in my view.
I found the article inspiring. How many people would have the foresight to do what he did and delay gratification by locking up that kind of wealth until the age of 59.
Except you just get taxed up front with a roth. You still get taxed.
You are at no greater advantage in growing your money after tax unless the tax code changes. (tax code change risk is the only reason people go with a roth). It just provides certainty.
There's not going to be a standard workflow you can Google. This is super niche. Get in contact with your company's (hopefully it's a startup, so they're willing to be flexible) stock administrator and with the company you want to use for an IRA (you may need to hunt around to find one willing to jump through the hoops).
May or may not find them to be willing, but you also won't know until you try.
Open a self directed IRA with a company like Pensco, fund it with cash and buy the options with a check issued from that account instead of a personal check. If the options are one cent per share and eventually are worth hundreds of dollars, you can avoid the capital gains tax. You can’t withdraw it until you retire though.
1. Contribute cash to the IRA. Use IRA cash to buy stock options from someone who holds those options (e.g. yourself). Ensure that you have real paperwork to back up the price that you're paying because if you don't the IRS is going to eat you alive!!!
2. Wait until options have value.
3. Contribute additional cash to IRA.
4. Use cash to exercise options.
There might be a slightly different flow to contribute the options, consult someone who knows what they're doing.
> Use IRA cash to buy stock options from someone who holds those options (e.g. yourself)
Non-arms-length transactions, which includes you selling something to "yourself", are prohibited transactions with respect to IRAs (for pretty obvious reasons).
Wanted to add to this that there is very little that would stop IRS from taking IRA status off your account (unless you're Peter Thiel) and forcing you to sell all assets and pay capital gains if you committed a prohibited transaction. An example of such IRA violation that's fairly common is buying rental property with IRA and utilizing it for personal use.
Oh, I'd believe it! In that case even fairly valued options would be a no-go; you'd have to buy them from someone else: probably tricky, doubly so for incentive options, and it sounds like buying publicly traded stock has a major advantage here.
The article says he bought shares (at $0.001/share, I guess pretty early in the life of the company), not options. Now, maybe a startup that's willing to give you options might also be willing to sell you shares (after all, that's almost what an option is), and might be willing to sell you shares in your self directed Roth.
Sadly, I didn't think to ask the startup I worked for about this. Would have been nice to not pay taxes to diversify.
I don't know, but I'm sure the argument is that the initial transaction can't be examined any more, and the subsequent transactions were all perfectly valid.
In my opinion, the entire IRA should be considered tainted and have taxes owed on all gains since 1999.
There could also be the argument that this constitutes tax fraud (depending on whether or not the $0.001 price was significantly under the market price that investors were offered at the same time), which as far as I know means the statute of limitations doesn't apply.
The whole point of a roth IRA is that taxes are paid on the assets before they are added and the investment becomes exempt from capital gains. I'm guessing the law applies to the act of adding the options rather than exercising them, so if he paid income taxes on them and the statue of limitations have passed he is in the clear.
You don’t, you just purchase the shares directly while they are a low price.
But this isn’t really so complicated, a Roth IRA can own normal options, an options contract can be for anything, you just need someone to sell it to you and you need enough capital in the roth to exercise it.
This wasn't done with options. Thiel straight up bought shares in Paypal at $0.0001. The only way to make this work is buying assets that are going to increase in value by orders of magnitude.
> Rather than dump his money into index funds or some other safe investment, Thiel spent $1,700 for 1.7 million shares of PayPal (a company he cofounded), at $.001 per share, inside his Roth. Within a year, the value of his PayPal shares skyrocketed from $1,664 to $3.8 million. Thiel then sold those shares (still within the Roth), meaning the value of his Roth became millions.
Be at the right place at the right time and have everything work out in your favor, lol
It looks like according to this source [1] placing stock options in a self-directed IRA violates tax code. This makes me wonder what kind of trickery was used to get this accomplished for Thiel. Granted, it's possible that the tax code was different than. ¯\_(ツ)_/¯
IRAs simply cant have assets contributed to them, only USD cash. With that USD they can purchase anything.
Additionally, stock options aren’t relevant here when it can also just buy shares directly, easy when you have executive authority over the company to sell shares.
Thiel had under 10% ownership of PayPal quick enough that year to comply with regulations (he had 3.5% ownership in 2002 when it was sold)
OR Thiel paid the penalty of $2,000 (100% penalty if transaction not undone) and didnt unwind the transaction, and still appreciated all the upside
OR the IRS took too long to discover the issue to levy the $2,000 fine
Doesn’t matter we don’t have the details, those are the possibilities and universe of consequences
> Thiel had under 10% ownership of PayPal quick enough that year to comply with regulations (he had 3.5% ownership in 2002 when it was sold)
If you're arguing that these stock units were purchased when the "company" was created in 1998, then you're talking about Confinity (not "PayPal"), which only had 3 founders. Thiel was clearly a >10% shareholder at the time. Or are you trying to argue that Thiel had a 0% stake, because his IRA had all of his stake?
You're using a 3.5% number from 3 years later, after merging with x.com, and raising ~$170M.
> OR Thiel paid the penalty of $2,000 (100% penalty if transaction not undone) and didnt unwind the transaction, and still appreciated all the upside
This is the biggest cop-out excuse of "valid". By this logic I can sell myself (into my Roth) all of my assets every year for $1, pay a $1 penalty, and everything is a-okay.
Yes, you can use that logic, its up to you to make that valuable. Unless you have a market of VCs or massive liquidity lined up it is a big and bad bet.
The other side of the logic is that the ownership percentage can be bound to the tax year instead of just the moment of the transaction. So you would be using an average % ownership which could have changed rapidly.
And of course there is the simple reality that he paid a $2000 fine
The financial engineering has always been available, obviously for 20+ years, many people just hadnt been inspired to do it until now. There are plenty of similar possibilities available that considers multiple state paths of value to generate massive returns.
Buying even one founder share in your startup is self-dealing and a prohibited. The penalty is the whole account loses tax advantaged status, not a measly $2000.
But tax details are private and between Thiel and the IRS.
Then you should have had your lawyer present case studies and real world examples of consequences and let that help you synthesize the outcome you wanted to follow
A roth IRA does not save you money unless the tax code changes unfavorably and at the time you exit the capital.
The math of taking the tax cut upfront (and then compounding your investment within) vs taking the tax cut later (after compounding) is actually the same.
This is laughably false, primarily because this is not just a discussion between a regular IRA (taxed on exit) or a Roth (taxed on entry). The contribution limits mean many people have a much larger amount of income than they could feasibly put into either type of account.
I mean, just look at how Thiel did it, it's not like he was trying to decide how to stash $1700. He saw it specifically as a way where he could buy a large amount of his shares at basically nothing because he knew if it grew he'd have a large amount of tax free cash to play with.
This is completely wrong for a huge number of people who are currently in a much lower tax bracket than they expect to be in the future (when they are withdrawing).
> Thiel showed that you do not need to invest in index funds in a Roth IRA, which is what most people have been saying investors should do for a long time. The thing that is blowing the personal finance world’s minds is the idea that people can and perhaps even should be much more aggressive within their Roth IRAs in hopes of running into some stock that goes bananas, therefore giving you a personal, tax-free slush fund to invest in anything for the rest of your life.
> “You want to put in [to a Roth IRA] highly undervalued assets that could grow massively in value,” Joshua Sheats, the host of the show, said on an episode that extensively praised Thiel’s strategy.
So the "investing tip" is to gamble on wildly speculative investments rather than invest in index funds. Investing in highly undervalued assets - it's so simple, why didn't I think of that sooner!?
This will make a few wildly rich, and many more will underperform the market. On average, everyone will do just as well as an index fund would've, because averaging is the entire point of index funds.
I'd be way more interested in repeatable advice for how to turn $2000 into $5B than I am in how to avoid paying taxes on it.
>So the "investing tip" is to gamble on wildly speculative investments rather than invest in index funds. Investing in highly undervalued assets - it's so simple, why didn't I think of that sooner!?
I don't think that's as useless a tip as you make it sound.
Suppose everybody invests in exactly the S&P 500. Nevertheless, each person can decide to hold the more speculative stocks in their Roth IRA and the others in a regular IRA, 401k, or taxable account.
That doesn't require identifying the best investments, just the relatively volatile ones.
So it seems like logical advice that is practical to implement, to me.
It’s a useless tip. If you have the ability to pick a $5bil winner you don’t need an ira. Just keep picking yourself $5bil winners in a regular taxable account and you’ll be fine.
Nobody here thinks people can do that. I asserted the tip is meaningful even assuming people can't pick winners.
The universe of available stocks contains different companies, with different market capitalizations, and different historical volatilities.
Assuming you can't select the best performing ones, you can still select the ones that are smaller and more volatile.
Do you have an issue with the assertion that owning foreign stocks, mutual funds, ETFs, etc (for a US person) is best done in a taxable account and not an IRA? Or does market efficiency indicate to you that shouldn't matter?
73 comments
[ 2.7 ms ] story [ 118 ms ] thread[0] https://en.wikipedia.org/wiki/Gavin_McInnes#Views
When in doubt, I'd rather not fund this.
Having said that, though, Vice has a pretty clear political slant, and alt-right is definitely not it. So I'm in hard agreement with your conclusion -- I mean, if you object to white supremacist co-founders, Vice kicking theirs out and cutting ties with him would kinda be a net positive, right?
[1] https://en.wikipedia.org/wiki/Ship_of_Theseus
Sensationalist reporting.
As to why it’s illegal, selling an arbitrary number of shares in your private company to yourself for 1$ then buying it back from yourself at say 1 billion dollars is normally legal. So, without such limits everyone could move unlimited money into a Roth IRA.
and the penalties are also clear, up to 100% penalty of the value of the transaction if it isnt unwound
Thiel could have paid that $2,000 and not unwound the transaction
It is not possible for the court to hear any other perspective
The timing of his “investment” is also off, he put the funds in after a seed round. Therefore those shares where worth far more than the annual Roth IRA contribution limit.
You can sell shares at arbitrary discounts especially when there are not liquid markets. If stock options are more necessary to circumvent accounting then in the money options can be used as well, with the Roth purchasing the stock options instead of earning it and getting more money in future years to purchase the in the money stock.
Now the government doesn’t go after the vast majority of criminals be that the IRS, FBI, or your local cops. However, that has no impact on what is or isn’t breaking the law as written. As such this was clearly tax evasion because it’s illegally reducing taxes he would owe and it’s fraudulent activity because it’s falsifying financial records for personal benefit. Hell was likely also wire fraud depending on how he submitted tax documents, not that such charges are normally tacked on to such cases but they still apply.
You know, 22 years later you can still do this as well and it wouldn’t be tax fraud or wire fraud.
You can do it even better now, than then, by doing backdoor Roths.
Play the game by a more efficient set of assumptions because yours are just self limiting.
Not if he used am old pre round validation after the investment occurred at a higher valuation as has been reported.
Also your penalties where off: However, if the individual for whom the IRA was established or the IRA’s beneficiary engages in a PT with respect to the IRA, the sanction is the loss of the tax-exempt status of the IRA as of the first day of the taxable year in which the PT occurs.
As such, all transactions after the original transaction lack their tax exempt status. As such based on listed rules and including interest and penalties and he’s potentially facing a multi billion dollar tax bill.
I just don’t see how another perspective can be reached with the same information
Put aside some money for the future.
Invest the money into company stocks, generally.
(Hopefully) having made good investments, have more money in retirement.
Retire and have some tax free money.
Most investments don't apprechiate quite so much, of course, but there were no rules on investment returns, only about contributions (and restrictions on self-dealing which may very well apply)
I found the article inspiring. How many people would have the foresight to do what he did and delay gratification by locking up that kind of wealth until the age of 59.
You are at no greater advantage in growing your money after tax unless the tax code changes. (tax code change risk is the only reason people go with a roth). It just provides certainty.
May or may not find them to be willing, but you also won't know until you try.
You can withdraw the original principal tax free after five years and profits can be withdrawn at any time by paying income taxes and a 10% penalty.
If you have any other assets it’d be stupid to withdraw it though. Tax-free accounts are the last one you want to draw from.
1. Contribute cash to the IRA. Use IRA cash to buy stock options from someone who holds those options (e.g. yourself). Ensure that you have real paperwork to back up the price that you're paying because if you don't the IRS is going to eat you alive!!!
2. Wait until options have value.
3. Contribute additional cash to IRA.
4. Use cash to exercise options.
There might be a slightly different flow to contribute the options, consult someone who knows what they're doing.
Non-arms-length transactions, which includes you selling something to "yourself", are prohibited transactions with respect to IRAs (for pretty obvious reasons).
Sadly, I didn't think to ask the startup I worked for about this. Would have been nice to not pay taxes to diversify.
Employee stock options are earned income, and you can't assign earned income into an IRA to escape taxation.
Before you ask, you're also not allowed to sell your stock options to your IRA.
As for how Thiel did it? It was arguably a prohibited transaction at the time and he's likely arguing that the statute of limitations has long past.
In my opinion, the entire IRA should be considered tainted and have taxes owed on all gains since 1999.
There could also be the argument that this constitutes tax fraud (depending on whether or not the $0.001 price was significantly under the market price that investors were offered at the same time), which as far as I know means the statute of limitations doesn't apply.
But this isn’t really so complicated, a Roth IRA can own normal options, an options contract can be for anything, you just need someone to sell it to you and you need enough capital in the roth to exercise it.
tl;dr
> Rather than dump his money into index funds or some other safe investment, Thiel spent $1,700 for 1.7 million shares of PayPal (a company he cofounded), at $.001 per share, inside his Roth. Within a year, the value of his PayPal shares skyrocketed from $1,664 to $3.8 million. Thiel then sold those shares (still within the Roth), meaning the value of his Roth became millions.
Be at the right place at the right time and have everything work out in your favor, lol
[1] https://sftaxcounsel.com/can-you-utilize-an-llc-to-hold-stoc...
IRAs simply cant have assets contributed to them, only USD cash. With that USD they can purchase anything.
Additionally, stock options aren’t relevant here when it can also just buy shares directly, easy when you have executive authority over the company to sell shares.
Thiel had under 10% ownership of PayPal quick enough that year to comply with regulations (he had 3.5% ownership in 2002 when it was sold)
OR Thiel paid the penalty of $2,000 (100% penalty if transaction not undone) and didnt unwind the transaction, and still appreciated all the upside
OR the IRS took too long to discover the issue to levy the $2,000 fine
Doesn’t matter we don’t have the details, those are the possibilities and universe of consequences
If you're arguing that these stock units were purchased when the "company" was created in 1998, then you're talking about Confinity (not "PayPal"), which only had 3 founders. Thiel was clearly a >10% shareholder at the time. Or are you trying to argue that Thiel had a 0% stake, because his IRA had all of his stake?
You're using a 3.5% number from 3 years later, after merging with x.com, and raising ~$170M.
> OR Thiel paid the penalty of $2,000 (100% penalty if transaction not undone) and didnt unwind the transaction, and still appreciated all the upside
This is the biggest cop-out excuse of "valid". By this logic I can sell myself (into my Roth) all of my assets every year for $1, pay a $1 penalty, and everything is a-okay.
The other side of the logic is that the ownership percentage can be bound to the tax year instead of just the moment of the transaction. So you would be using an average % ownership which could have changed rapidly.
And of course there is the simple reality that he paid a $2000 fine
The financial engineering has always been available, obviously for 20+ years, many people just hadnt been inspired to do it until now. There are plenty of similar possibilities available that considers multiple state paths of value to generate massive returns.
But tax details are private and between Thiel and the IRS.
this isn’t controversial just reality
A roth IRA does not save you money unless the tax code changes unfavorably and at the time you exit the capital.
The math of taking the tax cut upfront (and then compounding your investment within) vs taking the tax cut later (after compounding) is actually the same.
I mean, just look at how Thiel did it, it's not like he was trying to decide how to stash $1700. He saw it specifically as a way where he could buy a large amount of his shares at basically nothing because he knew if it grew he'd have a large amount of tax free cash to play with.
> “You want to put in [to a Roth IRA] highly undervalued assets that could grow massively in value,” Joshua Sheats, the host of the show, said on an episode that extensively praised Thiel’s strategy.
So the "investing tip" is to gamble on wildly speculative investments rather than invest in index funds. Investing in highly undervalued assets - it's so simple, why didn't I think of that sooner!?
This will make a few wildly rich, and many more will underperform the market. On average, everyone will do just as well as an index fund would've, because averaging is the entire point of index funds.
I'd be way more interested in repeatable advice for how to turn $2000 into $5B than I am in how to avoid paying taxes on it.
I don't think that's as useless a tip as you make it sound.
Suppose everybody invests in exactly the S&P 500. Nevertheless, each person can decide to hold the more speculative stocks in their Roth IRA and the others in a regular IRA, 401k, or taxable account.
That doesn't require identifying the best investments, just the relatively volatile ones.
So it seems like logical advice that is practical to implement, to me.
Nobody here thinks people can do that. I asserted the tip is meaningful even assuming people can't pick winners.
The universe of available stocks contains different companies, with different market capitalizations, and different historical volatilities.
Assuming you can't select the best performing ones, you can still select the ones that are smaller and more volatile.
Do you have an issue with the assertion that owning foreign stocks, mutual funds, ETFs, etc (for a US person) is best done in a taxable account and not an IRA? Or does market efficiency indicate to you that shouldn't matter?