When we went around the table the other day, I said I was thankful for my healthy, happy family and all the amazing opportunities we’ve had in our lives thus far.
But I’m also pretty darn thankful for legal tax shelters.
I know. And I get it.
There’s no bigger buzzkill than talking taxes… especially during this celebratory time of year. But trust me, this bit of information could be the biggest “gift” you can give your family and loved ones this holiday season.
But the very wealthy have been using legal tax shelters for years.
And although you can’t gift-wrap them… the money they can save you could buy you a lifetime of presents.
I’ll show you how in a moment. First, a couple caveats to get out of the way…
Tax laws are always changing… so everything here is based on current rules and tax rates. In fact, lawmakers are currently debating substantial changes that could affect Roth IRAs going forward… changes that only make this discussion more urgent.
Also, this information is for general tax purposes only and doesn’t cover every aspect of IRAs and retirement accounts… I encourage you to consult with an accountant or tax adviser regarding your specific financial situation.
So if you want the perfect stocking stuffer for the holidays – or just a profitable idea you can give to someone else – read on…
Do-It-Yourself Retirement Investing
Wealthy investors like billionaire Peter Thiel have been using legal tax shelters for many years now… and you can, too.
In Thiel’s particular case, a special type of tax shelter called a self-directed IRA (SDIRA) could potentially save him billions of dollars in taxes.
An SDIRA lets you invest in the type of asymmetric ideas we recommend at PBRG – like cryptos, startups, and private real estate plays – while minimizing or even eliminating the tax burden on their gains.
And based on our research, we estimate less than 1% of all IRAs in the U.S. are this special type.
Below is a rundown on the most popular types of IRAs…
|Traditional IRAs||Roth IRAs|
|You contribute pre-tax money and can save on your current taxes by lowering your taxable income (subject to certain income caps).||You contribute after-tax money, with no upfront tax-savings.|
|Your contributions and earnings are subject to taxation upon withdrawal.||Your contributions and earnings will never be taxed again, if you meet the basic withdrawal guidelines.|
|You must stop contributing and begin withdrawing money at age 70½.||No minimum withdrawal requirements and you can continue contributing as long as you have earned income.|
Note: The above information is for general tax purposes only and doesn’t cover every aspect of IRAs. Again, we encourage you to consult with an accountant or tax adviser regarding your specific financial situation.
SDIRAs are similar to other IRAs. You can have a traditional SDIRA, Roth SDIRA, etc. The main difference is SDIRAs aren’t held at regular brokerage accounts.
In Thiel’s case, he’s using this loophole to save a fortune in future taxes on the profits he’s made from his private PayPal shares.
Here’s how he did it…
In 1997, Thiel received nearly 1.7 million pre-IPO shares of PayPal valued at just $0.001 apiece (about $1,664). He placed those shares in a Roth SDIRA.
Since it was an SDIRA, Thiel could invest in alternative assets like pre-IPO PayPal shares. And since it was a Roth SDIRA, Thiel was taxed upfront.
So his contributions and earnings will never be taxed again (assuming he meets the basic guidelines)… and these savings apply to traditional Roth IRAs as well.
The chart below tells the whole story…
Under current federal tax law, Thiel could owe as much as 37% of that $5 billion to Uncle Sam. Instead, he’ll keep the extra $1.85 billion for himself by using a Roth.
Now, there’s no way to perfectly calculate Thiel’s actual federal tax rates.
But if we simply take the top long-term capital gains and ordinary income rates… the federal tax savings are incredible.
The Perfect Gift for Your Family
When it comes to picking between a traditional IRA and a Roth IRA, the biggest factors are your current income… the tax rates you’re being subjected to (federal, state, and local rates)… plus where you expect those two things to be in the future.
For example, someone who lives in a high-tax area like New York or California right now… but plans on retiring to a no-tax state like Florida… might have a lot more reason to choose a traditional IRA than a person with the opposite life plan.
In the end, there’s really no way to have perfect information. Life is unpredictable. Tax rates change. Even the laws related to IRAs can be altered at any time.
This is precisely why I have all different types of accounts – including both traditional and Roth IRAs.
Not only am I able to match up the best types of investments for each account’s strengths, but I’m also hedging my bets on how the future will end up playing out.
So, while we might not be billionaires like Peter Thiel, different types of IRAs and SDIRAs can save us a boatload of money on taxes.
And that’s my kind of holiday cheer.
Analyst, Palm Beach Daily
P.S. While IRAs are one way to protect your wealth and investment income, “Tech Royalty” cryptos can earn you massive gains of 3x, 5x, 10x, or more… no matter how prices move.
And the best part is, they pay out your earnings in more of the underlying crypto… so the value of your returns will rise as prices take off.
To learn more about how Tech Royalties can level-up your crypto portfolio… click here now.