Billionaires and Roth IRAs: the case for tax reform

#126
#126
lawgator1 said:
I'm not talking about taxing what was put in as after tax dollars. I'm even allowing for some significant tax free gain.

But not tens or hundreds of millions of dollars. Too easy to use it as a shell to park insane gains and pretend whoopsie, I just got lucky.
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So punish someone for being lucky, smart or both?
 
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#128
#128
lawgator1 said:
I'm not talking about taxing what was put in as after tax dollars. I'm even allowing for some significant tax free gain.

But not tens or hundreds of millions of dollars. Too easy to use it as a shell to park insane gains and pretend whoopsie, I just got lucky.
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you are wrong about the scenario you presented. without the potential for very large gains there is no investment capital for startups and early stage companies. even the best VC teams may get one out of 20 investments turn into a big gain, 10 of 20 are complete losses, 4 or 5 return the original investment after 3 - 5 years and the remainders are partial losses. Further, most startups never even get to VC stage so investing pre-VC stage in a startup has maybe 1% chance of paying big
 
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#129
#129
volinbham said:
you are wrong about the scenario you presented. without the potential for very large gains there is no investment capital for startups and early stage companies. even the best VC teams may get one out of 20 investments turn into a big gain, 10 of 20 are complete losses, 4 or 5 return the original investment after 3 - 5 years and the remainders are partial losses. Further, most startups never even get to VC stage so investing pre-VC stage in a startup has maybe 1% chance of paying big
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He's pretending that modern day Peter Thiel put $3B in his Roth and no one is stopping him because the system is broken and the rich run the world. Thiel got lucky as **** on this contribution. For the myriad of tech companies that went belly up in the late 90's he was a part of one that survived and thrived and is still very relevant. He then parlayed that windfall into even more money. He played by the rules and won big. There's a reason there's only a few hundred of these "Mega Roths" in the entire country. The chances it pans out were incredibly small. I did a lot of Roth conversions in 09/10, people were choking on the tax bill but were banking on rising tax rates and a battered equity market with a lot of good buys if you had the vision to hold long term. Those people have probably come out really far ahead in the past decade. I don't think they owe the government anything, they paid their tax bill(which reduced their cash available to invest) and could have lost significant money had the markets furthered soured or companies went bankrupt. And guess what, the IRS wouldn't be there to offer you a helping hand if it came to that.
 
#130
#130
DancingOutlaw said:
The principal is already taxed. That's the scheme. Your choice is deferring the tax through an IRA or paying the tax up front in a Roth. But of course this is the slippery slope a lot of us have been wary of. There would eventually come a time where the government was starved for cash and an easy target would be those with "too much success" in their Roth accounts. So we tax their already taxed money again, because this is how fairness works. And yes we told you we wouldn't do it but things have changed and well you didn't really make the money did you, I mean neither did we but these Stinger missiles aren't going to pay for themselves.
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Did you understand my suggestion was to distribute any monies over the agreed to cap annually, not tax those dollars. That way future growth on those excess dollars would generate tax revenue.

Also, why have the $6K limit on contribution and the $196K limit on AGI to participate then have a ROTH back door option for those who want something different than the established rules?
 
#131
#131
DancingOutlaw said:
He's pretending that modern day Peter Thiel put $3B in his Roth and no one is stopping him because the system is broken and the rich run the world. Thiel got lucky as **** on this contribution. For the myriad of tech companies that went belly up in the late 90's he was a part of one that survived and thrived and is still very relevant. He then parlayed that windfall into even more money. He played by the rules and won big. There's a reason there's only a few hundred of these "Mega Roths" in the entire country. The chances it pans out were incredibly small. I did a lot of Roth conversions in 09/10, people were choking on the tax bill but were banking on rising tax rates and a battered equity market with a lot of good buys if you had the vision to hold long term. Those people have probably come out really far ahead in the past decade. I don't think they owe the government anything, they paid their tax bill(which reduced their cash available to invest) and could have lost significant money had the markets furthered soured or companies went bankrupt. And guess what, the IRS wouldn't be there to offer you a helping hand if it came to that.
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I'm looking at conversions but my tax rate now isn't likely to change going forward and I can't pay the conversion tax now.

As an aside, I am mildly considering an electric vehicle and I'd use the tax credit to do the conversion - could move about $30K out of 403B into Roth at basically a wash.
 
#132
#132
walkenvol said:
Did you understand my suggestion was to distribute any monies over the agreed to cap annually, not tax those dollars. That way future growth on those excess dollars would generate tax revenue.

Also, why have the $6K limit on contribution and the $196K limit on AGI to participate then have a ROTH back door option for those who want something different than the established rules?
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What causes the excess to generate tax revenue? What's to stop me from buying muni bonds? What prevents me from buying equities, dying, and leaving my heirs stock with stepped up basis?
 
#133
#133
DancingOutlaw said:
What causes the excess to generate tax revenue? What's to stop me from buying muni bonds? What prevents me from buying equities, dying, and leaving my heirs stock with stepped up basis?
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Nothing stops you from any of those choices as the money has been removed from the ROTH umbrella and is now like any other monies. The question is still should ROTH be a multi million dollar tax shelter or a retirement vehicle for the everyday person as it was designed?
 
#134
#134
lawgator1 said:
https://www.propublica.org/article/...s-into-a-5-billion-dollar-tax-free-piggy-bank


This should make every American very angry. This is exactly what's wrong with our tax system. I am of the opinion it should no longer be run by Congress. As long as they themselves get insider deals, and as long as they are dependent on the generosity of those that do, the Congress cannot be trusted with the power to make the rules on taxation.

I'm open to alternatives. A constitutional amendment to tax all income, regardless of source, at a flat 10 %? No exemptions, deductions, no tricks or dodges. Or how about a pro rata share of the country's bills every year, plus a 30 year plan to pay off the debt, based on income? Would force Congress to be careful in its spending because taxes rise or fall every year based on what they outlay.

Bottom line is that the tax system is currently manipulated by those with enormous wealth so as to concentrate wealth even further and it needs to end.
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And really, this is a disingenuous conversation. This is a one off event. Very rarely is someone able to cash in like this on a start up in their damn Roth account. Let's not make this out to be something that is running rampant.
 
#135
#135
walkenvol said:
Nothing stops you from any of those choices as the money has been removed from the ROTH umbrella and is now like any other monies. The question is still should ROTH be a multi million dollar tax shelter or a retirement vehicle for the everyday person as it was designed?
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This instance is happening so infrequently that I don't consider this a "tax shelter" at all. Nevermind the risk involved, Thiel's stock could have ended up being worthless and we wouldn't be having this conversation. Complete loss of value with no relief isn't usually a hallmark of a tax shelter. These people followed the rules. Their risky bets paid off. Good for them. Aggression is the name of the game in Roths because you're already lost investment principal due to taxes so the feeling is you need to make that up.
 
#136
#136
walkenvol said:
Nothing stops you from any of those choices as the money has been removed from the ROTH umbrella and is now like any other monies. The question is still should ROTH be a multi million dollar tax shelter or a retirement vehicle for the everyday person as it was designed?
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There should not be a cap placed on how successfully anybody that has invested their Roth funds is allowed to keep their gains. If those mentioned like Buffett and Thiel weren’t the best of the best at generating returns, does the government simply normalize attacking whomever is the most successful investor? Citizens are welcome to participate in an investment vehicle, but if they do too well they will be penalized by changing the rules retro-actively. It’s hard enough to trust the government for all the other crap that they do.
 
#137
#137
Rasputin_Vol said:
And really, this is a disingenuous conversation. This is a one off event. Very rarely is someone able to cash in like this on a start up in their damn Roth account. Let's not make this out to be something that is running rampant.
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Since there is now a ROTH 401K and a back door ROTH option, I don’t think it is nearly the one off that you take it for. Certainly it is one of if not the highest, but the $5 million ROTH accounts will be commonplace in the near future if they are not already. Many Regular folks who invested 40+ years in their 401K or similar have a balance of $millions now which is the desired purpose as those folks should have plenty to care for themselves in their golden years. The gov gets their tax revenue when those dollars come out to be spent but ther re won’t be any tax in 10-30 years on those retirement dollars when they’ve been in a ROTH account. As much as we all hate taxes, they have to be paid
 
#138
#138
walkenvol said:
Since there is now a ROTH 401K and a back door ROTH option, I don’t think it is nearly the one off that you take it for. Certainly it is one of if not the highest, but the $5 million ROTH accounts will be commonplace in the near future if they are not already. Many Regular folks who invested 40+ years in their 401K or similar have a balance of $millions now which is the desired purpose as those folks should have plenty to care for themselves in their golden years. The gov gets their tax revenue when those dollars come out to be spent but ther re won’t be any tax in 10-30 years on those retirement dollars when they’ve been in a ROTH account. As much as we all hate taxes, they have to be paid
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Who cares about $5 million? I understand those are far more common. The incident we are speaking of is far, far less likely. No one needs to be messing with the $5 or $10 million accts.
 
#139
#139
This conversation is like so many others about taxation. Philosophically, some (maybe many considering a conservative is wanting to get the billionaires) feel citizens have the right to money amassed by other citizens.
 
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#141
#141
walkenvol said:
Since there is now a ROTH 401K and a back door ROTH option, I don’t think it is nearly the one off that you take it for. Certainly it is one of if not the highest, but the $5 million ROTH accounts will be commonplace in the near future if they are not already. Many Regular folks who invested 40+ years in their 401K or similar have a balance of $millions now which is the desired purpose as those folks should have plenty to care for themselves in their golden years. The gov gets their tax revenue when those dollars come out to be spent but ther re won’t be any tax in 10-30 years on those retirement dollars when they’ve been in a ROTH account. As much as we all hate taxes, they have to be paid
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I'm not sure what's so hard to understand about this concept:
Traditional IRA: pay no taxes up front, pay them on distribution
Roth IRA: pay taxes up front, no taxes due on distribution

This is the regime. To go back on this because a handful of people have accumulated more money than you're comfortable with is asinine. But again I think this is how progressives will nibble around the edge of means testing for various things as way to generate tax revenue for their pet projects.
 
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#142
#142
jvol1 said:
Bring on the wealth tax. It would be a great way to adjust for the easy money fiscal policy we've experienced pretty heavily since Obama. Assets have gone up and up, but wages haven't kept pace.
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It will never not be hilarious that some of the best material-analysis-oriented reporting consistently comes to us from the GDAMNED Financial Times

For those who would like to read:

“Pay them more”. With these three words, President Joe Biden summed up the most surprising outcome of the pandemic: workers seem to have the upper hand against employers thanks to widespread labour shortages. While this sense is strongest in the US, reports of businesses struggling to find staff are heard across much of Europe as well.

We should not get ahead of ourselves. Millions of people are still unemployed or on government-funded furlough schemes. Anecdotes of pay pressures do not amount to systematic and sustained high rates of wage growth. Sectoral spikes in prices are related to supply chain bottlenecks, not salary costs.

So the current perception of labour shortages may be just that. But if evidence builds up that workers are systematically making greater demands of their employers than before, the importance of the shift will be profound.

The fact that nobody predicted it is itself significant. We are still scrambling to understand what is going on. Reports of labour shortages coincide with reports of hardship, especially among low-paid workers. Even within single sectors — such as some UK hospitality sectors — many employers have kept employees on furlough when others are desperate for more hands.

It is possible these mismatches are the transition pains of a great restructuring of the economy, with remote working settling in to stay. Yet workers seem to be less victims than agents of this transition. This contrasts with the past 40 years of labour market restructuring, which has largely been inflicted on workers, not pushed by them.

During the pandemic, stories have abounded of workers determined to say no to work they would previously have resigned themselves to and to hold out for something better. It is not just anecdotal, either. A new study finds that more than one-fifth of US workers — and 30 per cent of under-40s — have seriously considered a career change since the pandemic began.

What this looks like is the return of something that was exiled from centrist policy debate and mainstream economic analysis for decades: class conflict and its economic consequences. To be precise, we may be witnessing the manifestation of two outmoded ideas: that the relative power of economic classes alters macroeconomic outcomes; and that macroeconomic policy tilts that relative power.

A third and novel idea is also being put to the test: that strengthening “employees’ bargaining chip”, as Biden put it, can encourage employers to increase both labour productivity and output if they expect demand growth to be strong.

Conventional economic thinking has little room for these possibilities. In standard models, the supply and demand for labour match when workers are paid exactly their marginal contribution to production. If they demand more and better — or governments do so on their behalf — the result will be unemployment and inefficiency as businesses prefer to curtail production.

Can a fully employed economy, contrary to those models, be compatible with a whole range of salary bargains between business owners and employees, depending on their relative power? Can companies’ productivity respond to high demand pressure? If so, can a “big push” from government increase wages, employment and productivity growth at the same time, with higher but contained inflation? The great experiment of Bidenomics may give us answers to these questions.

If the answers are Yes, they will overturn a series of not just economic assumptions but political ones. They will be deeply contested.

Every downturn rekindles interest in John Maynard Keynes. This one should call attention to Michal Kalecki, Keynes’s contemporary. In his 1943 article “Political aspects of full employment”, the Polish economist not only set out a succinct argument for fiscal stimulus but also discussed why business interests may oppose full-employment policy, including entrepreneurs who paradoxically stand to make greater profits in a regime of high demand growth.

Kalecki offered three reasons. Business owners may dislike government activism as such, because “once the government learns the trick of increasing employment by its own purchases, this powerful controlling device [of making employment depend on business confidence] loses its effectiveness”. They may dislike public investment for fear it leaves less space for private profitmaking. Even if they accept the need to end a downturn, they may oppose policy to maintain maximum employment because it would change the balance of power in the workplace.

One does not have to be a Marxian economist to see the risk of politically motivated reasoning. If Bidenomics succeeds, fiscal activism to improve workers’ bargaining power will enjoy strong support to be kept in place through good times too. Kalecki warned: “In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound.” That should sound familiar.

A better aspiration is what Kalecki called “full employment capitalism”. This will depend on promoting an enlightened view of capital owners’ self-interest: far from class conflict being a zero-sum game, productivity incentives from greater worker power can boost profits as well.
 
#145
#145
#147
#147
Rasputin_Vol said:
This is the thin edge of the wedge. Of course there are 401(k) millionaires... but this is the build up for them to eventually modify these retirement plans so that they can tax them more.
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Exactly! The Bloomberg article even referenced the Thiel crap story.
 
#148
#148
NorthDallas40 said:
Bloomberg carrying their share of water to point out those people with savings that “need to pay (more of) their fair share”

There are more 401(k) and IRA millionaires than ever — Bloomberg
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The whole point of 401(k)s and IRAs was to entice the people to save for their future themselves instead of being 100% dependent on the government and Social Security. It is asinine to punish those that were disciplined and saved for their future and to give it to anybody that was irresponsible and chose to live beyond their means.
 
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#149
#149
Impossible Girl said:
This example on skirting the limits of the Roth IRA that we are held to would be a good start.
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They went by the exact same laws you can utilize.

Even if you make more than 150k you can still legally contribute to a Roth via a Backdoor.

The point is legally. It was added by law and every advisor worth a grain of salt would tell their client to utilize it if possible.

Don’t blame smart people for being smart.
 
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#150
#150
Thunder Good-Oil said:
The whole point of 401(k)s and IRAs was to entice the people to save for their future themselves instead of being 100% dependent on the government and Social Security. It is asinine to punish those that were disciplined and saved for their future and to give it to anybody that was irresponsible and chose to live beyond their means.
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True, but you know how this will probably end up in 20 or so years.......

Govt- "You don't really NEED your social security money" or "You can afford to pay more". "You've got a 401k/IRA/Savings/ect."
 
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