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Playbook gets new funding to help users do what Peter Thiel does—pay lower taxes on investments

October 7, 2021, 12:00 PM UTC

Stories of the ultrawealthy avoiding taxes are a dime a dozen. Most recently, billionaire Peter Thiel made headlines for turning the sleepy Roth IRA, a tax-free retirement account that holds $39,108 for average people, into a $5 billion windfall.

Many of the über-affluent have some not-so-secret help in that department: They can afford accountants to navigate the complex U.S. tax system and cut their tax liabilities, often legally.

Now, San Francisco–based Playbook wants to make that possible for moderately well-to-do millennials—within the confines of the law, of course—through automation. On Thursday the startup said it had raised $5.6 million in seed funding from Atomic, a venture studio that cofounded the business.

Playbook, which has about 10,000 users and 50,000 on the wait list, seeks to ensure that its customers take advantage of basic investment and retirement benefits. First, it asks them about their finances across their various accounts, and then automatically distributes their paychecks to the mix of strategies that lowers their taxes the most. That may include maxing out, say, their 401(k) match, then their Roth IRA. For the average user, a thirtysomething-year-old earning $150,000 annually with some savings, Playbook estimates that it can help boost net worth by about $1.3 million by the time the person is around 75.

The service costs $19 monthly.

As with filing taxes, most information about 401(k) match or for Roth IRA accounts is publicly available. But understanding it is difficult. About a third of Americans, for example, don’t contribute enough to their 401(k) to trigger their employer’s minimum match, per Vanguard. Moreover, there’s much to keep track of: Depending on their salaries, single users who are under 50 and earn under $140,000 a year can contribute up to $6,000 annually to a Roth IRA. Those making over $140,000 meanwhile can also use a more complex “backdoor IRA”—in which users can sidestep income limits—to access the Roth IRA that they otherwise would have been locked out of.

Playbook aims to help its users manage all this, says cofounder and CEO David Hegarty.

While tax-filing software makes it easier for some consumers to pay taxes at the end of the year, Playbook wants to reduce the tax burden of investments from the get-go. Hegarty characterizes minimizing taxes at the end of the year as a defensive strategy, with Playbook’s strategy more like going on the offensive.

Playbook, which debuted in July, isn’t quite ready to match what the Thiels of the world do. Thiel, a PayPal cofounder, turned his Roth IRA in a multibillion-dollar account by accessing pre-IPO shares of the financial company—a deal few would be able to reach. While Playbook may not be able to help with that, it does see a potential future in which it helps consumers do what Thiel eventually did—which is reinvest those dollars in the tax-free account in ever more lucrative investments—though it’s all still early innings.

“Step one is to make sure they aren’t losing the tax advantages in their retirement accounts,” Hegarty says about customers. “And then in the future, it’s to really help people maximize what they can do with those tax advantaged accounts.”

And for those looking for immediate gratification: Hegarty is considering expanding into helping investors determine the best tax strategies around their active stock trading. Assets held under a year, for example, typically face higher tax rates than those held for a longer period. To an extent, some fintechs like Betterment do offer ways to lower taxes via automated tax-loss harvesting, in which a security is sold at a loss—booking a realized loss on the investment—and replacing it with a similar asset. Hegarty, too, sees this as part of the eventual plan.

Whatever the case, House Democrats are looking to crack down on Roth IRA tax strategies used by the likes of Thiel. Doesn’t Hegarty worry that eventually regulators will also view his company unfavorably? Hegarty, for his part, says the customers he’s going after are not the hyper-wealthy that officials appear to be concerned about. His audience makes generally $100,000 to $350,000 annually. Meanwhile, a recent tax proposal by lawmakers seemingly addressing Thiel’s strategy targets those with over $10 million in their tax-advantaged retirement accounts, and singles earning over $400,000 a year. Regulators, Hegarty says, largely want Playbook’s target audience to save. In fact, he sees these negative headlines as a positive.

“Typically, thinking about how to invest from a tax perspective to maximize returns has been for the ultrawealthy,” he says. “Congress created the IRA to help the middle class.  Now we have to help the middle class use it most effectively.”

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