As we have discussed, investing in Renaissance Technologies hedge funds—and one of them in particular—is among the greatest perks to working at Renaissance Technologies, more than enough to compensate for the unpleasant odors emanating from the corner offices. And as we’ve also discussed, once of the ways RenTech makes it so is with a little creative prime broking and tax accounting.
There’s another way that RenTech makes things even better for those employees, and that’s by combining its can’t-miss hedge funds and its adeptness with the tax code to make them even more money. Specifically, it allows them to invest in those hedge funds through 401(k) and IRA plans fee-free. Alas, once again, the IRS is not amused.
Last week, Renaissance sent a letter to its current and former employees warning that the Internal Revenue Service could force them to pay back taxes and penalties… The letter, reviewed by The Wall Street Journal, said Renaissance now believes the IRS could determine that the foregone fees should be counted as taxable income and as contributions beyond the annual limits to retirement plans…. The Medallion fund, which is only available to employees, charges hefty annual management fees of 5% of all assets and as much as 44% of all of the fund’s gains, suggesting that the foregone fees could be substantial.