So..about this $3.5 trillion spending bill and revoking personal self-directed IRA investments..what's next? Government approved ETFs?
Is anybody watching the news? The $3.5 trillion spending bill that is at risk of being passed through completely revokes the possibility to invest your own IRA into private businesses and/or real estate assets. How is this acceptable for ANYONE? It's one thing to target the top earners of the world and make them pay slightly more in taxes, but to one day say Bezos needs to pay more and the next throw in a shady IRA amendment that completely fucks over even middle class is mind baffling.
How can you allow this? Someone please explain the difference between being allowed to invest in Apple and a private, independently owned company in your hometown. The government is scared you're going to be "too successful"? Literally, what is next? Government-approved ETFs and not allowing anyone deemed "too successful" to invest in IRAs?
This is insane.
I've met a great many people, and to my knowledge, I've never known of a middle-class person who used a self-directed IRA custodian. Do you? It's certainly possible, especially on the real estate side, but such a person would be rather unlikely to remain middle-class for long, wouldn't you say?
This doesn't limit your ability to invest in private businesses or real estate at all (not that this was your contention), it only limits your ability to do so with tax-advantaged vehicles. As a practical matter, IRA limits are $6K per annum ($7K with age "catch-ups"), so about how much high-rolling are you going to do there anyway? As it pertains to fairly valued investments, not a whole lot. As it pertains to undervalued investments, a crapton. That's why you had the Mitt Romneys and Peter Thiels of the world saying that they were only putting $5K or $6K into general partner interests or startup stock, when they knew that in a real options sense, there was a great probability that they were going to make tens, if not hundreds of millions of dollars through that, all tax free. At that point, you have a few options as the government: 1) give up and let people make an American aristocracy through IRAs that are stocking-stuffed with undervalued private business interests, 2) create a Byzantine valuation bureaucracy to fairly value all these interests and massively drive up enforcement cost, or 3) disallow tax-advantaged investment into investments that are not easily valued (no publicly quoted market capitalization). It's a broad sweeping policy that is meant to avoid the abuses of saying "all my general partner interests from my PE firm are in an IRA, so suck it."
Frankly, I barely know anyone making less than six-figures who even knows what a self-directed custodian is, and in any case, they weren't buying all that much in FMV assets with $6 and 7K a year anyhow. Cheers
EDIT: As a Christian, sometimes a verse in the Bible will come across my mind as I write. In this case it's Proverbs 20:14, which says "It is naught, it is naught, saith the buyer: but when he is gone his way, then he boasteth." These people with self-directed IRAs will often say, "my shares are worthless, they're worthless," but then when they pay no tax on any of it, they'll boast of their cleverness.
Not sure, all I know is that you can convert your 401k into a self-directed and invest a portion in a startup, hell, even your own business. Look up ROBS; 'Rollover as Business Startups' proposal that was implemented a while ago that allows fairly modest Americans to roll their retirement savings into business startup expenses. I've known a shit ton of people who wanted to diversify their holdings outside of the normal ETF/Apple/Public Equities environment who bought real estate via LP interests and know a few more (but not as many) who invested in friends or family startup ventures (think mom-and-pop restaurant..).
What I'm saying is, half the country got spooked by Thiel blowing up his IRA and decided it was best to screw everyone over - even the little people investing modest sums of money into a well-diversified portfolio, because 1 guy got massively rich. Think about that - 1 single individual got extremely lucky, and the country just screwed over people all the way down the totem pole to normal Americans because of it. It is kind of insane.
As a practical matter, please explain to me why it's OK to funnel your IRA money into tech behemoths or literally any public company that is still in infancy (TSLA 10 years ago, etc.) but you cannot invest in your aunt's deli down the street? It's really kind of simple to avoid the issue you're mentioning without adjusting the entire system..just limit retirement accounts to $10mm? Limit any single investment to a special tax; if there's a 'capital gain' of >$10mm in one single asset held in an IRA, convert that asset to normal tax savings, etc.
It's not that difficult to work around what you're saying without screwing half the country. I'm shocked your ok accepting a shock collar and a curfew at night from politicians who can easily avoid this level of infiltration in our personal lives and still accomplish what they ostensibly aimed to curb; but the fact is they tricked the entire country and it's not about billionaires at all. It's about constricting as many people earning a living above mediocrity that they can and empowering themselves.
ROBS is more reasonable as a policy because it designed for owners who will actually be working for the C-corporation itself, not figures from private equity (Romney) and venture capital (Thiel) who are investing money only. Purchasing real estate through an LP interest in a syndication is different than using a self-directed custodian. You could do both at the same time of course, but they're different. Same with family startups. Of course I know people who have done either of these, they just never used a self-directed custodian.
Your argument about 1 guy is ill-informed considering the conspicuous Senate Finance report that found that 156 individuals had at least $25MM within an IRA, with their assets totaling over $53B. Many of these instances are because of self-directed custodians. Is that marginally less insane to you?
The reason it's okay to funnel money to a public company rather than a private one is because at least there's the assurance that the tech behemoth is not going to give you the shares for a song. There's no such assurance in the private markets, particularly when I can start a PE fund with > $100MM AUM, have an assurance that 1% AUM will go to the GP interests, and then claim that that's somehow worth less than $1MM, much less $6K. You may be comforted to know that your proposed remedy has actually been discussed for this very bill: RMDs for retirement accounts with balances over $5MM.
Happy to address anything else you like. Cheers
Here's another completely reasonable strategy - allow for the investment in LP or private startups from retirement accounts WITHOUT the 10% early withdrawal penalty. Almost everyone wins in that case, as well. But no, again, it makes more sense to just blanket ban these types of investments AND screw over normal people who had to go to retirement accounts to fund a startup in the first place.
Progressives don't care, they voted for this. Equity of outcome > Equality of opportunity in their eyes. Everyone gets to be stuck in equally shitty circumstances (minus the politicians and famous activists of course) vs those with actual brains being allowed to succeed on their own merit and excel beyond the sea of mouth-breathing, MSM-consuming NPCs that populate this country. It's disgusting to see play out and those of us who are still young can only hope that the numerous advocates for the bill in Congress all simultaneously drop dead and this that it dies with them. Note the sly little IRS tracking of every $600 transaction people make also included. Big daddy state incoming to see why you aren't paying your fAiR sHaRe in taxes lmao
I used a self-directed IRA and lost 100% of my money on an investment lol. $22,000 flushed down the toilet. That said, it does feel like the Democrats--probably unintentionally--seem to go right after the middle class with their policy prescriptions. For example, Dodd-Frank basically destroyed banking for small businesses. The big banks pretty much don't lend to small businesses (they might on paper, but in practice, they don't) and Dodd-Frank basically regulated away the community bank; now, the little guys are relegated to these online lenders with atrocious terms and interest rates.
The self-directed IRA is a rarely used but very real work-around for small/start-up businesses trying to form capital. It just seems like another attack on the middle class in favor of major corporations.
Closing off the ability to use a tax-advantaged vehicle to purchase startup stock surely doesn't impact capital formation. The only impact is on subsequent capital gains. Can you help me here?
I don't think you realize how many entrepreneurs there are out there that need to raise money in order to make their idea come to fruition but aren't on the level of going to fucking VCs in SF in order to do so. Where do you think normal people get their initial capital funding? From fucking normal people, neighbors, retirement accounts, etc.
Do you live in a bubble or are just incredibly ignorant to think that these tech companies all were funded by a16z at their founder's communion?
The other point that is incredibly hilarious that Democrats (or you) don't consider is that MOST people, I'd venture to guess who are investing out of IRAs are not doing it explicitly for the idea that they will generate $100mm+ and screw the government, but are doing so because that's likely the only fucking source of liquidity they have in this country.
If it wasn't for those 156 guys investing a portion of their retirement in a hail mary shot, maybe we wouldn't have fucking Amazon. The fact that you can't realize is..beyond me. Sure, go ahead and tax these types of investments and disallow retirement accounts, but don't be completely blind to the fact this will kill activity 10-fold in that area and you'll lose tons of after effects of those investments. Democrats are too short-sighted to see what that means and doesn't realize successful companies will end up paying 10x more tax than the fucking IRA tax they lost out on from a couple early investors.
A great number of people are illiquid, with their main source of paper wealth being their home and retirement accounts. A retirement account, in principle, could be a great way to access capital not otherwise available. You can't borrow because there is no bank to lend; you don't have access to VC because VCs aren't interested in your laundromat; you can't borrow from friends and family because you're middle class, lower-middle-class, or lower class and so are your contacts. So retirement accounts, if accessible, are a source of capital formation.
the SEC already approves ETFs bro
all this is is proof that washington is more interested in making headlines that sound nice instead of fixing the middle class generationally like onshoring manufacturing, stopping QE and bailouts, fixing public education, completely changing the tax code to treat all income the same. the changes that would actually help the middle class take longer than an election cycle, but house reps that suggested this will now get to shout "no more mitt romney and peter thiel roth IRAs!!!" as if that makes any fucking difference
No, there's nothing wrong with this. Democrats need to raise money for their plans which do support the middle class, but they also face backlash from centrists in their party over tax hikes. So naturally, closing a sketchy backdoor is a good place to start.
I don't recall saying this was wrong, I just think it's missing the forest through the trees
It isn't sketchy, fucking hell. This is massively limiting to wealth creation in this country. Japan here we come, brought to you by the Democrat party and its biggest shit policy cheerleader Drumpfy.
Ah yes, middle class in America: the household of 4 bringing in 60k who like to invest in small businesses in their free time through their IRA with the $50 they save each month.
This is totally not meant to stop people bringing in 7 figures or high six figures from using a back door IRA to make private investments tax free.
A simple fix to that would be some ceilings rather than scraping the whole thing.
They don't know how to do "simple" on capitol hill. Look at the pure # of pages in this spending bill.
Actually did you know that something like 60% of income replacing small businesses were started with money from retirement accounts. Don't quote me on that number specifically but an economics professor of mine in undergrad told us that the number was north of 50%. This at its base level is not about stopping some people from making too much money in their IRAs. It is about locking down opportunity to be class mobile in the US. Nothing frightens rich people more than new rich people joining the club. So many of them have a fixed pie world view.
The new law prohibits people with incomes above 400,000 dollars a year from doing this trick, so only people who are already rich.
Just invest in Opportunity Zones instead. Best tax shelter on ANY capital gains, I have ever seen. It is much better than self directed anyway because you AVOID taxes when you put it in and tax free including capital gains when you sell it.
Stop fighting the system and roll with the punches which are better anyway.
How is this acceptable for anyone? Because you fail to realize that 99% of Americans exist outside of your / this bubble lol
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