Middle-class American simply trying to hit their Roth individual retirement account limits of contribution each year can’t be amused to hear about a story like Peter Thiel’s.
The PayPal co-founder, now 53, has used the IRA system to gain tax-free status for his billions of dollars.
Thanks to a ProPublica report, it’s explainable — and in danger of facing reform.
The key points, with help from ProPublica’s work.
- Thiel has used his Roth IRA to amass $5 billion in his IRA savings (tax free at the time of withdrawal), accessible when Thiel reaches age 59 1/2.
- Thiel’s Roth IRA wasn’t even worth $2,000 in 1999, according to Internal Revenue Service data obtained by ProPublica.
- The IRA saw its value rise more than $3 billion in just three years through the process of purchasing 1.7 million shares of PayPal in 1999 for $0.001 per share, or $1,700.
- For the average middle-class American, the Roth IRA contribution limit is $6,000 a year in 2021 (or $7,000 for people 50 and older).
According to Marketwatch.com, Thiel’s strategy was to buy a large number of shares in a startup at fractions of a penny per share.
“When those investments garner large gains, investors can use the proceeds from these investments still inside the Roth IRA to make other investments. Substantial gains could be derived if the company goes public and its share price skyrockets.
“The gains from those sales are then tax-free, because they occurred inside a Roth IRA.”
Doesn’t really seem right.
Berkshire Hathaway’s Ted Weschler, who also amassed a fortune in his Roth account, per ProPublica, said via statement that change is needed: “Although I have been an enormous beneficiary of the IRA mechanism, I personally do not feel the tax shield afforded me by my IRA is necessarily good tax policy.”