This works particularly well if you're Peter Thiel and the asset you're contributing is low-basis shares of PayPal, but it's also a popular tactic for middle-class taxpayers on up.
But here comes the Biden Administration to mess up your plans. Under the new tax bill, this strategy would be disallowed, writes Lynnley Browning at Financial-Plannig.com.
The emerging tax bill would ban individual retirement accounts of all types and any size from holding alternative investments intended only for investors whom securities regulators consider “sophisticated.” That means shares in anything other than publicly-traded stock, bonds or mutual funds — such as private businesses, startups, private equity-backed firms, real estate, hedge funds and peer-to-peer lending networks.
Under the House tax bill, investors would be prohibited from holding in their IRAs any investments that are only available to accredited investors starting next year. Affected investors would have two years to sell their investments or forfeit the tax-advantaged status of their IRA.
Read how things will change if the bill passes — and get ready to scramble.