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Yes, you read that right. We have crowned a winner.

The finance world was taken by surprise yesterday when reports came out that Peter Thiel, the co-founder of PayPal, Palantir, and the first investor in Facebook (alongside many other incredible investments) somehow and someway managed to garner a whopping $5 BILLION dollar Roth IRA portfolio.

First, if you have no idea what a Roth IRA is, I will usher you to read this in-depth article I wrote a few months back (here) covering everything you could possibly know about the matter. If you don’t have a Roth IRA it is an absolute no-brainer must-have to set yourself up for retirement. Long story short, a Roth IRA is a type of retirement account in which someone is only allowed to contribute up to $6,000 a year and withdraw money from the account at 59 1/2 years old. The clutch aspect of the Roth is you can withdraw all gains from stocks tax-free at that age!

So even if let’s say Peter Thiel made his yearly contributions starting at 18 years old that would come out to be a total of $210,000 contributed at his current age of 53. He would have needed a 2,380,852.38% gain to go from $210,000 to $5 billion which would undoubtedly be the greatest 35 years of portfolio performance I can think of.

Spoiler, that is not what happened.

What’s even crazier about this story is the last time Theil contributed to his Roth was in 1999 and his total portfolio was only $2,000 (the max contribution at the time). Hmmmmm sounds fishy…

This was in many ways a classic “the rich get richer” scenario in which Theil’s savvy team of accountants figured out a way in which he could put pre-IPO shares into his Roth IRA account.

PayPal was a private company in 1999 and Thiel bought around 1.7 million shares for $.001 each and placed those shares into his Roth Ira. In just a couple of years, this investment swelled to around $3.8 million and Thiel was able to do the same thing with his early investment in Facebook and a company he founded known as Palantir. By the way, going from $2,000 in your Roth to $5 billion is a cool 249,999,900.00% gain.

Illegal? No.

Slimy? Possibly - but depends on who you ask.

People on Twitter pissed? When are they not?

Look, Peter Thiel is rich and would be rich either way but yes this was a loophole in the tax system that was exploited. This shouldn’t be shocking to anyone at this point that ultra-rich people find loopholes in quite possibly the most asinine system in the world (The United States Tax system). The government knows that people tax advantage of the tax system inefficiencies because there are many and all I can say is if I or you was in his shoes you would undoubtedly probably do the same.

Along with this, Theil is not the only billionaire who has somehow managed to amass a large fortune nest egg in their Roth Ira.

Here are just to name a few:

• Warren Buffett reported with $20.2 million in his Roth (2018)

• Ted Weschler (manager at Berkshire) reported with $264.4 million in his Roth (2018)

• Randall Smith of Global Capital reported with $252.6 million in his Roth

• Robert Mercer of Renaissance Technologies reported with $1.5 million in his Roth

Obviously, there is a theme going on here. The ultra-rich are using the Roth IRA as a form of a nest egg with savvy accounting skills. Part of me is not surprised at all and the other part of me just finds it hilarious that people are mad about it. At the end of the day, just like his normal ownership of his companies, if these companies went belly up his shares in his Roth would be sitting at zero and his account would have gone from $2,000 to $0. Paypal, Facebook, and Palantir had to become unicorns in order for a portfolio to grow to these heights (which they did).

What do you think? Is Thiel a scumbag for doing this?

I would love to hear your comments below. All replies are welcome and will be respected.

In my honest opinion, Peter Thiel did nothing wrong. He bought shares in companies that he founded for less than pennies as any founder does and reaped the benefits of those companies turning out to be businesses that changed the world. He won’t have to pay any taxes on those gains when he is allowed to withdraw at 59 1/2 and quite honestly I don’t care. I won’t either when I withdraw at that age - the difference is my account will be many times over smaller but such is life. I’m not Peter Thiel and I won’t probably create the next global payment processing system such as PayPal. In all reality, he made a wise investment decision and used the system that was put in place legally.

If you are wondering my thoughts on capital gains tax look no further than my tweet yesterday below.

Let me explain: I work my job. I get paid for my job. The government taxes me on my work via income tax. I then save up that leftover money and decide to better my future by investing it by owning shares of a company via stock. Most retail investors lose money in the market and by the grace of God if they don’t and actually squeeze out a profit when they sell they are hit with a capital gains tax. Sounds like double taxation to me. Sounds like theft.

Don’t get me started on estate tax.

Hey look, it’s Friday. Cheers!

If you know someone who hates taxes too and might get a laugh about Peter Theil’s behemoth Roth Ira please consider giving it a share…

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BEFORE YOU GO

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