In this special episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses how Peter Thiel, co-founder of PayPal, turned a couple thousand dollars into a $5 Billion Roth IRA and how it’s all tax free!
A recent ProPublica article detailed Peter Thiel, and his $5 billion Roth IRA. How does one reach that ridiculous amount in a retirement plan? Adam delves into all the details and how Mr. Thiel amassed such a fortune. Thanks to insight, his massive amount of retirement funds are all tax-free, since they are held in a Roth-type retirement account.
Who is Peter Thiel and Why is He in the News?
Peter Thiel is one of the co-founders of PayPal, which was later bought by eBay for $1.5 billion. He used funds from his stake in PayPal to reinvest his money into other assets, including Facebook. His wealth continued to grow and grow, hitting $5 billion in 2019.
What Peter Thiel did was no secret, and was deemed perfectly legal. Since PayPal was not yet public, it had no fair market value set. Therefore, they were able to “guess” the price of a stock in the company. It was deemed one tenth of one cent was the value. Mr. Thiel purchased 1.7 million shares of the company with his Roth IRA. When PayPal was sold, Thiel sold those shares for an estimated $28 million!
That stock, known as founder stock, was bought with after-tax funds in his Roth IRA. Because he took a small salary, he was under the income threshold of direct Roth contributions. Therefore, he turned about $1,700 into billions with smart investing. Of course, knowing what he was sitting on, gave him a big advantage that many of us will never see!
The $5 Billion Roth IRA
A Roth IRA is an after-tax retirement account that anyone can utilize. There are income restrictions, in which you cannot make direct contributions if you earn too much money annually. However, there is a strategy, known as the Backdoor Roth, which will allow anyone to get funds into a Roth.
Unlike a traditional plan, there is no immediate tax break. Roths are funded with after-tax money. However, so long as you are at least age 59 1/2 and any Roth has been open for at least five years, all distributions are tax free!
According to Mr. Bergman himself, the Roth IRA is the best tax shelter you can have. As an added bonus, you can withdraw your contributions at any time, tax- and penalty-free. Keep in mind, any earnings must remain in the plan or else you will pay those taxes and penalties.
Lastly, there are no required minimum distributions, or RMDs, to worry about. If you don’t need those funds when you retire, you can allow them to grow, without tax, and pass them along to your beneficiaries.
Time for You to Take Notice
Obviously, most of us will never see a $5 billion Roth IRA. Heck, we might not even see $1 million. However, with some patience and a little bit of investing prowess, anyone can amass enough wealth for a comfortable retirement.
We’re not privy to the information someone like Peter Thiel may have. Do you know someone building a unique program or service that will blow up like PayPal? Probably not! That doesn’t mean you should give up. By self-directing your Roth IRA, you open the investment world up. You can choose to invest in almost anything you want, including real estate, cryptocurrency, precious metals and private businesses.
Although you might not see the type of returns that Thiel did, wouldn’t it be great if the returns you do see are tax free? The only way to avoid taxes on your investments in the future, is by using a Roth IRA.
Imagine getting in on Amazon or Tesla stock when they were initially offered? How about buying Bitcoin when it was worth a few bucks (or even a couple thousand)? If you made that investment with a Roth, you are well on your way to an easy retirement.
Thanks for Listening!
As always, we appreciate you taking some time out of your day to listen to Adam Talks (or read this synopsis!). Remember, you can find all of our episodes on our SoundCloud page or other streaming services.
We look forward to you joining us for a future episode, as Adam talks about the impact the $5 billion Roth IRA may have on the average American.
