How Peter Thiel Used Loophole to Amass $5B in His Roth IRA

It amounts to 'Bermuda-style tax haven right here in the US'
By John Johnson,  Newser Staff
Posted Jun 27, 2021 1:05 PM CDT
Billionaires Turn Humble Roth IRA Into a Tax Haven
Billionaire Peter Thiel.   (AP Photo/Ben Margot, File)

ProPublica is continuing its investigative series on how the richest of the rich avoid paying taxes, and the latest story is surprising in that it revolves around a "relatively humdrum retirement" tool—the Roth IRA. The idea behind the Roth is that modest earners can sock away money for retirement and withdraw it tax-free in their golden years. Typically, contributions are limited to $6,000 a year, and the average Roth account had about $40,000 at the end of 2018. Ah, but the uber-rich have found a loophole, and nobody has exploited it as successfully as PayPal co-founder Peter Thiel. "Using stock deals unavailable to most people, Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall," per the story. And the kicker is that when Thiel turns 59 and a half—he's now 53—he can start withdrawing the money tax-free.

The story explains the loophole with an example: Open an IRA for $1,000. "Then, in a scenario that only a handful of people have access to, you use that money to buy 1 million shares in a new startup company for just a fraction of a penny per share." In a few years, the company goes public, and each share is worth $50. Suddenly, that humble $1,000 account is worth $50 million—and because all of this transpired within a Roth IRA, it's not subject to taxes. It flies against the face of the original intent of the Roth and amounts to a "Bermuda-style tax haven right here in the US," per the story. Thiel is far from the only member of the 1% to exploit the loophole—Warren Buffett aide Ted Weschler has $264 million in a Roth, and hedge fund manager Randall Smith has $252 million—but Thiel earns the title "Lord of the Roths." (Read the full story.)

Stories to sink your teeth into.
Get our roundup of longform stories every Saturday.
Sign up
Get the news faster.
Tap to install our app.
X
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.

X