A new ProPublica feature broke down how PayPal co-founder Peter Thiel was able to amass $5 billion in savings from an account that was worth less than $2,000 20 years prior.
According to IRS data, Thiel's Roth Individual Retirement Account (IRA) was worth less than $2,000 in 1999. After only three years, the account was worth more than $3 billion despite Thiel contributing no money to the account after 1999. By the end of 2019, the account amassed $5 billion.
Roth IRAs were created to help the middle-class set money aside for retirement with no taxes due upon withdrawal. The 53-year-old only has to wait six more years until he can withdraw from his Roth account tax-free.
According to MSN, one of the ways Thiel used his Roth IRA was by purchasing 1.7 million shares of PayPal in 1999 for $0.001 per share, or $1,700.
"With this strategy, investors are able to buy a large number of shares in a startup at fractions of a penny per share," according to the article. "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."
Critics of the strategy have argued for policy reform as the goal of Roth IRAs was to help the middle and lower class.
Source: ProPublica
