Billionaire investor Peter Thiel managed to grow less than $2,000 into more than $5 billion of tax-free savings in just two decades, according to leaked IRS data.
The enormous chunk of wealth was reported by investigative nonprofit site ProPublica on Thursday as part of a series of stories about the ultrawealthy that is being written using a trove of thousands of pages of tax documents illegally leaked to the news outlet.
Thiel was able to grow his ostrich-sized nest egg through the use of a Roth IRA, an individual retirement account that is never taxed even when it can be deducted after the holder reaches 59 1/2 years old. The accounts, named for late Republican Sen. William Roth of Delaware, were designed to help middle-class people save money but have been used by some to amass hordes of untaxable wealth.
Thiel, who first opened his Roth IRA in 1999, was able to grow his account so quickly by placing 1.7 million shares of his company PayPal (which was then private) into the Roth IRA when they were valued at just $0.001 per share. In just a year, the value of his account had grown from $1,664 to a staggering $3.8 million, a 227,490% return on investment, according to the tax documents.
Thiel then used the magnified proceeds, which were still sitting in his Roth IRA account, to make other investments that were able to fuel his wealth and grow his quickly burgeoning retirement account.
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While Thiel is best known for co-founding the groundbreaking payment services platform PayPal, he was also Facebook’s first large outside investor. Facebook founder Mark Zuckerberg met with Thiel in 2004 and agreed to give him shares of the then-infant social media company in return for a $500,000 investment.
Four years after his Facebook investment, Thiel’s Roth IRA, which held just $1,664 less than a decade earlier, had grown to be worth more than $870 million. Thiel was not alone in cashing in on the tax-free accounts — at least three other former PayPal employees managed to build Roths worth more than $80 million each.
While in the early days of the Roth IRA there were limitations to wealthy people investing in Roths, that changed during the waning years of President George W. Bush’s administration through the use of a mechanism called a “Roth conversion.”
Roth conversions allow individuals, even those with enormous amounts of money, to convert their traditional IRAs into Roths as long as a one-time income tax is paid on the funds. Once the account is transformed into a Roth IRA, no more taxes are due for the rest of the investor’s life.
ProPublica found that others, such as legendary investor Warren Buffett and hedge fund managers Randall Smith and Robert Mercer, have made use of investment tactics to balloon their Roth IRA accounts.
Ted Weschler, a Buffett deputy at Berkshire Hathaway, had amassed a $264.4 million fortune in his Roth IRA account by the end of 2018. After Roth conversions came into practice, Weschler was able to convert $130 million, and Buffett did so with $11.6 million, the tax records showed.
Weschler said that he was able to grow his nest egg by investing the maximum amount of funds into his retirement account each year since 1984 when he was 22 and because of “exceptional luck” and careful investing. He said in a statement that in 2012, he paid more than $28 million in taxes when he converted his traditional IRA into a Roth.
Even so, Weschler indicated that he supports some form of Roth IRA reform, despite his successes in building wealth using such accounts.
“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,” he said. “To this end, I am openly supportive of modifying the benefit afforded to retirement accounts once they exceed a certain threshold.”
As for Thiel, he is poised to have a windfall if he withdraws the money when he reaches the age of 59 1/2 in April 2027. Thiel is a major proponent and investor in anti-aging technology companies and has claimed that he intends to live to age 120 — with a 6% annual return, his Roth IRA would reportedly be worth $263 billion by that time, over $60 billion more than the world’s richest person, Jeff Bezos.
The Thursday article follows the explosive revelation about the leaked tax documents earlier this month when ProPublica published its initial article on the matter. The first article highlighted how people, such as liberal political donor George Soros and Buffett, paid little to nothing in federal income taxes, though no wrongdoing was alleged.
The news sent a jolt through Capitol Hill, where Democrats are pushing for increased taxes on the wealthy as part of President Joe Biden’s spending proposals. Republicans have balked at the notion and have used the leaks as further justification to oppose a White House plan to increase IRS funding to the tune of $80 billion and give it more authority.
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The Treasury Inspector General for Tax Administration is leading an investigation into the IRS leak, and Republicans have demanded that administration officials testify in a hearing on the matter.