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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

(Newser) 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.

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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.)

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