(Bloomberg) — Peter Thiel, the billionaire co-founder of PayPal who is a vocal opponent of higher taxes, had amassed $5 billion in a tax-free Roth individual retirement account by 2019, ProPublica reported, citing confidential IRS records.
Investment gains in Roth IRAs are never taxed, and the accounts are subject to contribution and income rules designed to limit them to middle-class taxpayers. In 1999, when Americans could contribute at most $2,000 per year to Roth IRAs, Thiel placed into his account 1.7 million shares of then-private PayPal that were valued at just $0.001 per share.
Within a year, the value of his Roth jumped from $1,664 to $3.8 million. Thiel, 53, later used his Roth to make highly successful investments in Facebook and Palantir Technologies, ProPublica reported, citing the tax records and other filings and documents. By 2019, Thiel’s Roth held $5 billion “spread across 96 subaccounts.”
The proceeds of a Roth IRA are tax-free as long as they’re not accessed until an account holder reaches age 59 ½.
Americans are now typically restricted to putting a maximum $6,000 a year into a Roth. The average account was worth $39,108 in 2018, ProPublica said.
ProPublica said Thiel didn’t respond to their requests for comment.
Wealthiest Americans
The news organization this month reported they obtained tax records on thousands of the wealthiest Americans covering more than fifteen years. ProPublica revealed that billionaires such as Jeff Bezos and Elon Musk have in some years paid minimal or no personal income tax even as their fortunes have soared. It outlined the tax strategies available to the wealthiest 0.1%, including Bloomberg LP founder Michael Bloomberg, the majority owner of Bloomberg LP, the parent company of Bloomberg News.
Through the tax data, the news organization identified other holders of IRA accounts in excess of $20 million. They include Ted Weschler of Berkshire Hathaway, who had $264.4 million in his Roth, and his boss Warren Buffett, with $20.2 million. Hedge fund manager Randall Smith of Alden Global Capital, had $252.6 million, while Robert Mercer held $31.5 million in his Roth, ProPublica said, citing records.
Weschler, Buffett and others created their accounts via a technique known as a “backdoor” Roth conversion, in which they paid tax to the IRS upfront to convert a traditional IRA to a Roth. The option was created by Congress and President George W. Bush in 2006 as a short-term way to raise revenues.
Those cited didn’t respond to ProPublica’s questions, except for Weschler, who stated that his retirement account “relied on publicly traded investments and strategies available to all taxpayers.” He added that he is in favor of reforming the system.
“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 told ProPublica. “To this end, I am openly supportive of modifying the benefit afforded to retirement accounts once they exceed a certain threshold.”
There have been previous reports of massive retirement accounts, including the time Mitt Romney ran for President in 2012 and listed on a financial disclosure form that he had an IRA worth $20 million to $102 million. Romney, a former Bain Capital executive, had placed low-valued shares from private equity deals into the account to bypass the limits. As a traditional IRA, Romney’s account would ultimately be subject to tax when money is withdrawn.
Ron Wyden, a Senate Democrat from Oregon, in 2016 outlined a reform plan arguing that there needed to be a crackdown on “massive Roth IRA accounts built on assets from sweetheart, inside deals.”
ProPublica’s analysis detailed that by the end of 2018, at least seven other current or former Bain executives had amassed IRAs worth $25 million or more, with three exceeding $90 million.
Thiel, who is worth $7.2 billion, according to the Bloomberg Billionaires Index, was audited by the IRS in 2011. The audit was closed years later without him owing any more taxes, ProPublica said, citing the tax records.
