The 196 million dollar Roth

[clifp]

I thought I was doing pretty well the combined value of my 401K/IRAs moving past 1.5 million, despite only contributing for 15 years.

Then came Gov. Romney with an IRA worth more than $100 million that he accumulated over a life time.

But my hats is off to this entrepreneur.

In the first example, an entrepreneur contributed $5,000 of “founders’ shares” in a business to a Roth IRA in 2008. The original value of the shares was $0.00125 each. The company went public in 2012 at $25 a share. The account grew to $196 million by 2014.

From the WSJ.

I say if he uses the 72(t) to do withdraws before 59.5 and can qualify for an ACA subsidy, he should be crowned the Olympic champion of tax avoidance.

 

[heeyy_joe]

But the fact remains that you are indeed doing quite well. Check your yardstick.

 

[pb4uski]

Very smart play. $196 million tax-free. That guy is my hero.

 

[Senator]

an entrepreneur contributed $5,000 of “founders’ shares” in a business to a Roth IRA in 2008.

That is the problem with allowing non-publicly traded stocks to be allowed in an IRA. There is no way of knowing what the actual value is. If anyone could have purchased the shares at the same price, I would bet the price would be higher.

I doubt the company actually grew that much, it was already worth that. But that kind of thing happens all the time.

 

[GrayHare]

That is the problem with allowing non-publicly traded stocks to be allowed in an IRA. There is no way of knowing what the actual value is. If anyone could have purchased the shares at the same price, I would bet the price would be higher.

Very true. If arbitrary valuations are allowed, all sorts of games are possible. For example, you start a corporation and I start a different one. We each put founders' shares in our respective Roth IRAs. A little later, I buy your shares for $X million and you buy my shares for the same amount, and suddenly both of us have large Roth IRAs. Expect this loophole to be closed before long.

 

[Mulligan]

But the fact remains that you are indeed doing quite well. Check your yardstick.

I feel a lot better about myself using my yardstick in comparison to my friends. Mr. Romney's yardstick makes me feel like a loser.... Richer, smarter, tremendous head of hair, and generally just an all around better person than me.


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[2017ish]

Probably is Max Levchin. In March 2012, he apparently retained 3.9 million shares of Yelp in his Roth. The valuation at that time was $22 per share, and this morning is north of $58 (although if he sold in the 90s earlier this year). See How A Serial Entrepreneur Built A $95 Million Tax Free Roth IRA - Forbes

 

[nun]

Looks like a massively under valued initial [-]corruption[/-] corporation stock

 

[nun]

I feel a lot better about myself using my yardstick in comparison to my friends. Mr. Romney's yardstick makes me feel like a loser.... Richer, smarter, tremendous head of hair, and generally just an all around better person than me.


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I have a different yardstick, mine is (or was) Tony Benn

 

[ArkTinkerer]

I thought you couldn't contribute anything other than cash to an IRA? Did he do some sort of sale and then purchase within the IRA? What are the mechanics of this?

 

[GrayHare]

I thought you couldn't contribute anything other than cash to an IRA? Did he do some sort of sale and then purchase within the IRA? What are the mechanics of this?

I believe dollars already in the Roth IRA are used to purchase founders' shares.

 

[Independent]

Note the very closely related thread here:

http://www.early-retirement.org/forums/f28/irs-is-looking-at-your-largeish-ira-74572.html

 

[eta2020]

Very smart play. $196 million tax-free. That guy is my hero.

I would call him crook.....but it is all legal.

When a "hero" like him effectively steals money from tax collections.....another guy like you must plug that missing hole

 

[ArkTinkerer]

I think the ability to over contribute to your 401K and then shift it to the Roth is rather sleazy. That said, if the option were available to me I would have taken it!

 

[2017ish]

I would call him crook.....but it is all legal.

We don't know enough to determine that (nor should anyone outside the taxpayer and IRS). The initial valuation was purportedly 1/8 of a cent per share. If so, depending upon timing, there may be valuation issues under current law--subject to limitations periods....

Don't think that the systems are in place to really police this though....

(edited for clarity)

 

[eta2020]

I think the ability to over contribute to your 401K and then shift it to the Roth is rather sleazy. That said, if the option were available to me I would have taken it!

Agreed....But being sleaze ball is not a good quality for certain jobs

I know, no politics. I will be quite from now on.

 

[springnr]

Classic case of "Can't see the forest for the trees" ploy. The populace then focuses on the outlier, to determine this is not right.

The spindly 1.5 M trees are the ones that end up being pruned.

 

[Hamlet]

The man lied about the value of his pre-ipo stock in order to get around the contribution limits to an IRA.

A just system would have him forced to withdraw this amount from his IRA, pay the taxes and penalties, and serve 6 months in prison for tax fraud.

We have different ideas of what makes a hero.

Very smart play. $196 million tax-free. That guy is my hero.

 

[ArkTinkerer]

The man lied about the value of his pre-ipo stock in order to get around the contribution limits to an IRA.

A just system would have him forced to withdraw this amount from his IRA, pay the taxes and penalties, and serve 6 months in prison for tax fraud.

We have different ideas of what makes a hero.

Depends on when he made the purchase of the shares. If this was done before the company had any assets or real value it would be legitimate--at least to my way of thinking. If he did it after the company was on its feet and earning (or was well on its way to earning) vast sums then yes, I agree with you.

I think this would be a good way to pursue ventures after FI. The only risk he took was that losses can't be carried outside the IRA. For the type of ventures he pursued--primarily other people's money--it was a very wise move.

 

[MichaelB]

The original topic has run it's course. Another thread is still open discussing a similar topic. http://www.early-retirement.org/forums/f28/irs-is-looking-at-your-largeish-ira-74572.html

 

[Walt34]

Thanks all for an interesting discussion.