Somewhere along the line, I happened to read this article about Roth IRAs being abused by the ultra-wealthy. I encourage you to read it. The site, ProPublica.org describes themselves thusly: “ProPublica is a nonprofit newsroom that investigates abuses of power.”
Let me preface this next paragraph by saying that I don’t know much about Peter Thiel. I don’t know if the statements made about his views on taxes are accurate or not. My personal view on taxes is that the tax code is grossly unfair, starting with the fact that there are different tax laws for corporations than for private citizens. Changing the tax laws to let private citizens pay their expenses before their taxes, the way corporations do, would be a good start. But that’s another discussion for another post.
After reading that article, my first thought was not indignation that a billionaire was using a tax loophole left by Congress. Frankly, that’s business as usual. Why wouldn’t they? I absolutely would if I had the means!
Nope. My first thought was “That’s f#%@in’ brilliant!!!”
Let me get this straight… I can have an account that I can deposit after tax dollars in, up to a yearly max? And no matter how much I earn in it, it will never be taxed by either the state or federal governments? Oh, hell yeah!!!
It’s true that Peter Thiel has access to investment methods that someone like me doesn’t. It’s also true that he’s used these methods to with his Roth contributions to grow them way beyond the scope of what was envisioned when Roth’s were instituted.
So? I hardly see that as “abuse of power”. It’s exploiting a mechanic that anyone is free to exploit to the best of their ability. Personally, I find it a lot less offensive than the fact that members of Congress, on both sides of the aisles, routinely engage in insider trading. Those that “don’t” get around it by the the ridiculously contrived method of having their spouses do the actual investing-as if they don’t talk.
That is an abuse of power!
So, yeah, I have nowhere near the investing resources that Peter Thiel does. That’s pretty much true in every aspect of my life. So what? The rest of the ProPublica article details a host of shenanigans that Thiel, and various other ultra-wealthy, pull to avoid taxes. Oh dear… the rich are getting richer. What a shock! Sure, it’s not fair. But that has nothing to do with the Roth IRA.
Unlike 99.99% of the crap the ultra-wealthy get away with, the Roth is a mechanic that I can take advantage of. There’s plenty to be pissed about when it comes to the wealthy not paying their proportional share of taxes, but frankly, this is pretty low on the list.
There is no other mechanism available to the typical small investor that has the potential a Roth IRA does. In August of 2021, I used what was left of my severance to do a max contribution for 2021, and opened a Roth. If you haven’t opened one yourself, do it. I can’t stress that enough.
I’m going to put a wrap on it there, but one note here: open the Roth, but before you start actually investing with it, read my next post.