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Comment by papito | Hacker News Reader

I am sweating here the fact that I am making more than is allowed in order to contribute. Fidelity lets me, so I do, but someone like Thiel, of course, can find ways.

How in the f*k do you invest into startups with something that is not publicly traded anyway? Was PayPal over the counter? Why was it so cheap?

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> How in the fk do you invest into startups with something that is not publicly traded anyway? Was PayPal over the counter? Why was it so cheap?*

He was one of the founders of Paypal. At that stage, the strike price of the shares would have been fractions of a cent. More importantly, the "fair market value" of the shares of a non-public company is what the board says it to be which pre-funding is whatever they choose. Post-funding, there's usually a floor set because outsiders (aka investors) have done some analysis.

Normal people pay X% tax on the difference between strike and FMV. (X varies based on a bunch of things.)

That's all Stock Options 101.

Normal people can take advantage of the situation by executing as soon as they have the strike price. That makes the difference $0 so any % of that is still zero. The risk is that the actual value of the shares could go to zero too.

The "loophole" with Thiel is doing it all with an IRA.. which legally anyone can do BUT it's complicated and requires a specific process.

I've followed RocketDollar the past few years because they help with that and document all of it properly.

You can invest in many asset classes in a Roth. You can buy a house. What I'm interested in is if Theil offered to invest $100 from his Roth at a $1,000 valuation with a handshake that he would then invest $1,000,000 at a $100,000,000 valuation. Or numbers that make more sense.

Of course, if you're not an accredited investor, you cannot invest in startups. The idea is you could not recover from a loss. So I have no idea why a Roth should be allowed to invest as an accredited investor.

The accredited investor rules irk me. Not because investing in startups is a good way to accumulate wealth, but because of the double standard. The government happily separates literally tens of billions of dollars from poor people every year through the lottery, why can't we let those people crowdfund interesting new ideas if they want to?

Fortunately, you can now also become an accredited investor by taking a class rather than meeting income or wealth requirements.

This is the right approach IMO.

Do you have any info on where to take this class?

Unfortunately, I don't. Here is more about it though: https://www.investor.gov/introduction-investing/general-reso...

I also have seen that some Angel Investment firms will pay cost of accreditation from your fees to them.

Due to the long history of investment scams. The lottery takes large sums in aggregate, but doesn’t use high pressure sales tactics or let people easily place their life savings in it. Aka, it would take significant effort to buy 500,000$ worth of lottery tickets.

The lottery gives players a moment to fantasize about what it’d be like to be rich. I see no difference to buying a beer for a few moments of entertainment.

Obviously people can overdo gambling, but the same goes for beer.

There is a secondary benefit in that it influenced people like me to save, invest, and work very very hard to get that status. I invested in one YC startup after achieving it and that felt like a major personal win.

However, the financial goal posts were set 20+ years ago should have been periodically updated for inflation.

Blame scam artists. Before these rules were in place, scammers were taking people's life savings through shoddy investments. This happened often enough that people asked the government to step in to protect these people. And the "Accredited Investor" was born.

Maybe things would be better today if they revoked the rules. Or maybe they would be worse. But either way it exists for a reason.

And to be honest, $1MM is not a huge hurdle to overcome. Anyone looking to invest in risky ventures would be wise to accumulate a meaningful amount of wealth in order to shield them from the loss of capital they will very likely incur. Plus, there are ways around this in certain situations.

A better approach would be to address the reporting requirements that are preventing startups from going public earlier. Startups used to IPO a few years after founding, but now they are going for 10+years.

Look at the SPAC boom. Letting retail in creates many problems. There are too many scam artists in the world.

Thanks to Regulation Crowdfunding, people can. Sites like Wefunder make it easy to do so.

How can I put a Single Family House I buy in my Roth IRA?

I think you can have houses that are bought for investment (e.g. rented out to others) but not a house you live in. You need IRA custodians that allow alternative investments.

You create an LLC that you invest in, that LLC then buys the house. Pretty much anything but (a) collectables or (b) S-Corps can be owned by a Roth the same way.

You cannot live in it, your family cannot live in it (for some level of closeness), nor can any of you even replace a broken window. But it's totally doable. You need a self directed Roth and paperwork done. You are allowed to do the paperwork yourself.

> Fidelity lets me, so I do

This is inadvisable. There is a legal way to do this. https://en.wikipedia.org/wiki/Roth_IRA#Traditional_IRA_conve...

If you're making direct Roth contributions over the limit, those are disallowed and may come back to bite you. It may be possible to recharacterize your already-done disallowed contributions as Traditional IRA conversions; I would talk with Fidelity or a tax advisor.

I am curious as to what compels someone to admit in writing to committing fraud.

I push a button that says "Contribute", and it's fraud. Donald Trump buys land in New Jersey for $2 million to develop a golf course, the golf course is deep sixed by the town, he writes "$100 million loss because that is what it is worth in my opinion", and it's fine.

God forbid I make a few thousand dollars tax-free, let alone by accident.

But you just wrote you did it on purpose, not by accident.

I realized after the fact that I have been contributing above my income level - I was sort of aware I might have been out of the range but I never paid attention. The screens are nagging you about being at $0 contributions.

So now that you have acknowledged it, you have to take steps to fix its. Otherwise, it is fraud.

Turbotax will yell at you when you report it and make you unwind (recharacterize) the transaction.

There is a proper way to do it though. Contribute to a traditional IRA and immediately convert it.

The last time I did it I got totally torched on taxes. You can only convert from scratch - not after the fact.

You should be very careful. There is another way to do this, it's called a backdoor Roth. Despite the sketchy name, it's perfectly legal and used in practice by millions of people. A simple way is to contribute $6,000 of post-tax money into a traditional Roth, then submit what is called a Roth conversion to convert the $6,000 into a Roth IRA account. Do this through the proper channels so all the documentation is there.

This is not financial advice.

Did you read the article? It mentions he used Pensco, an IRA custodian that allows alternative investments. Pensco is now Pacific Premier Trust.

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