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Thiel's Roth IRA is worth $5B, in comparison Romney was a piker

msf
edited July 9 in Other Investing
From ProPublica:
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. To put that into perspective, here’s how much the average Roth was worth at the end of 2018: $39,108.
https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank

To put that into a different perspective, Romney's (traditional) IRA, disclosed as a 2012 presidential candidate, was valued at "merely" between $20.7 million and $101.6 million.
https://www.reuters.com/article/us-usa-campaign-romney-ira/how-did-romneys-ira-grow-so-big-idUSTRE80N04E20120124

This is just so far over the top that I'm not going to offer any other quotes or comments. The figures speak for themselves, and the legislative proposals seem to be as expected.

https://www.wsj.com/articles/what-peter-thiels-roth-ira-means-for-yours-11625218209
WSJ: What Peter Thiel’s Roth IRA Means for Yours

Comments

  • Roth IRA article at Bloomberg........hopefully, y'all may have access.
    ProPublica reported that in 1999, Thiel, the co-founder of Paypal Holdings Inc., placed 1.7 million shares of then-private PayPal into his Roth Ira. They were valued at $0.001 per share, meaning the contribution was under the $2,000 limit at the time.
    This reads as more of an "envy" write. No law was broken, and anyone here who is or was an excellent investor could have invested in their choice in 1999.

    --- APPL Apple
    --- Avg. stock price for the year, 1999 = $.52
    --- The easy math...........let us assume one bought $2,000 (1999 Roth limit) of APPL stock at $.50/share in 1999.
    --- This equals 4,000 shares, yes?
    --- AS OF July, 8, 2021 the cumulative percent change, which includes all distributions and splits, etc. = +45,129%

    As with Mission Impossible, your mission; if you choose, is to provide the total value today from the original $2,000.

    I've really got to get my arse in gear with chores.

    Thank you for finishing the math; and no, no prize awarded. And, yes; verify my numbers......there may be a "too little" coffee error.

    Regards,
    Catch
  • Thank you. Thiel has access to special stocks and likely insider information that are no available to the public. Compounding on the large annual gain is what provided the $5 billions Roth IRA account. It is likely he combined the annual Roth contribution and Roth conversion (from traditional IRA).
  • msf
    edited July 9
    I know I promised no quotes, but it's not accurate that "anyone here who is or was an excellent investor could have invested in their choice in 1999."
    Mr. Thiel purchased his founders’ shares in PayPal through his Roth IRA during PayPal’s formation.
    I've purchased founders shares, though they usually turned out to be worth about what I paid for them, i.e. nothing. Is there "anyone [else] here who ... could have invested in" founders shares in 1999?

    Regarding AAPL, even if we assume $6K contributions per year (they were limited to $2K in 1999 and only gradually rose to the current $6K in 2019), an account would have grown to less than $16 million. Thus at $2K/year, the account would have grown to well under $6 million.

    While one may talk about the "magic of compounding", the magic that's available to "anyone here" only gets you so far.

    Porfolio Visualizer AAPL backtest (with $6K annual contributions)
  • Even with the best scenario you posted above with Apple, you can do so much. But the ability to get founding shares with cost base that costs penny would make a much bigger impact. The difference between million and billion is 1,000 times.
  • founding shares with cost base that costs penny

    Here's where one of those factors of 10 comes from ...
    SEC filings ... show that he bought his first slice of the company in January 1999. Thiel paid $0.001 per share — yes, just a tenth of a penny — for 1.7 million shares. At that price, he was able to buy a large stake for just $1,700.
  • Absolutely.
  • As he is self employed and an owner of his venture capital firm, he arranged to be paid under the Roth limit the year he pulled this off.

    The problem is no one in Congress thought about putting an upper limit on Roth IRA withdrawals when they wrote the law
  • beebee
    edited July 10
    sma3 said:

    The problem is no one in Congress thought about putting an upper limit on Roth IRA withdrawals when they wrote the law

    Congress has done the opposite for inherited IRAs by eliminating the stretch provision for heirs. All inherited IRAs (including Roth IRAs) must be fully distributed within 10 years. This at least forces this $5 billion Roth account to be liquidated 10 years after the death of the Account holder.

    Had Theil bought these shares in a taxable account the $5 Billion would also be mostly tax free to his heirs based on the step up provision that:
    When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner’s death. Then, when the heir sells these assets, capital gains taxes are applied based on this reset value. The result is a situation – often considered a tax loophole – that allows investors to pass assets to their heirs virtually tax-free.
    image

    https://darrowwealthmanagement.com/blog/step-up-in-basis-on-certain-inherited-assets/

    Also,
    If President Biden gets his way, many wealthy Americans will no longer be able to pass stocks, real estate, and other capital assets to their heirs when they die without paying capital gains tax. He wants to do this by changing the tax rules that allow a "step up" in basis on inherited property. This proposal, along with others designed to increase taxes on the wealthy, is included in Biden's recently released American Families Plan – a $1.8 trillion package that includes spending on childcare and education, guaranteed paid family and medical leave, tax breaks for lower- and middle-income Americans, and more.
    https://kiplinger.com/retirement/estate-planning/602701/biden-hopes-to-eliminate-stepped-up-basis-for-millionaires
  • Had Theil bought these shares in a taxable account the $5 Billion would also be mostly tax free to his heirs

    Perhaps $3B would have been passed tax free to his heirs, after accounting for the 40% federal estate tax. While there are ways to circumvent estate taxes, my figure is based on procedure in the diagram.

    I'm missing the connection to "stuffing" IRAs, an at best dubious and at worst illegal practice, to address @catch22's statement that "No law was broken".

    Again from ProPublica:
    Thiel’s unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren’t allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as “stuffing” because it gets around the strict limits imposed by Congress on how much money can be put in a Roth.

    PayPal later disclosed ... in an SEC filing ... that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.”

    Victor Fleischer, a tax law professor at the University of California [asserted that] buying startup shares at a discounted $0.001 price with a Roth ... would be indefensible.
  • Anyone who understands how wealth works and has worked throughout history realizes that the greatest crimes are almost always legal.
  • Slavery, for instance.
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