This investing hack created a $5B Roth IRA for this Billionaire

Peter Thiel turned his Roth IRA into a $5 billion money stash - here’s how he did it.

In June of this year, I was sitting at a coffee shop ☕ in downtown Austin and an article headline caught me. 

ProPublica had just published an article entitled “Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Tax-Free Piggy Bank”.

This news was timely. The night before I spoke with two retired 28 year old friends that also make highly speculative investments via their Roth IRA. 

Needless to say, I wanted to understand how to do this for myself. Turns out, it’s easy. 

Today we’re discussing Peter Thiel, his $5B non-taxable Roth IRA, and how we can deploy the same strategy.  

Let’s dig in! 

Introducing Peter Thiel: 

Many of us have a Roth IRA. It was originally intended to help middle-class taxpayers save money and enjoy tax-free withdrawals. What Theil learned early was that he could invest directly into startups from his Roth IRA, which enabled him to create a colossal $5B tax-free savings account.

While Thiel achieved outlier success, he started small. The first check he wrote from his Roth IRA was $1,700 into Paypal.

So who is Peter? 

Peter Thiel is a San Francisco based billionaire. He’s known as the “Don of the Paypal Mafia” after co-founding Paypal alongside Elon Musk and several other well known Silicon Valley Billionaires.

 I’ve chronicled his business life below:  

  1. 1989 - 1992: Graduated undergrad from Stanford University and earned his JD from Stanford Law School 🎓. 
  2. 1996: Moved to NYC and became a securities lawyer and derivatives trader. He left NYC because he wanted a career with more “transcendental value” ✌️.
  3. 1996: Thiel moved back to SF and founded Peter Thiel Management after raising $1M from friends and family to invest in startups 💰.
  4. 1997: Invested in Confinity, which later became Paypal, and joined the company. Thiel purchased 1.7 million founder shares using $1,700 from his Roth IRA 💡. 
  5. 2002: Ebay acquired Paypal for $1.5B. Theils 3.7% ownership netted him $55M 🤑. 
  6. 2002: Founded Clarium Capital, a hedge fund, supported by his Paypal winnings.
  7. 2004:  Met Mark Zukerberg and invested $500,000, valuing the company at $4.9M, which bought him 10.2% of Facebook (the most lucrative deal of his career). 
  8. 2004: Co-founded Palantir Technologies (Worth ~$46B today).
  9. 2005: Founded Founders Fund and invested in Airbnb, SpaceX and Lyft 🦄🦄🦄. 
  10. 2012: Founded Mithril capital, a global stage agnostic fund. 
  11. 2017: Founders Fund (Thiels venture fund) bought $15-$20M in bitcoin. 1 year later it was worth hundreds of millions. 
  12. 2021: As of June, Thiel has an estimated net worth of $7.24 billion and is ranked 385th on the Bloomberg Billionaires Index (That’s private jet money 1,000 times over 🛩️🛩️🛩️).

I had to revisit this timeline numerous times. The sheer amount of output is truly staggering. 

In 54 years of life, he’s done more than most. His many masks include being a highly successful venture capitalist, Wall Street lawyer, hedge-fund trader and savvy entrepreneur. 

One could argue that this conservative tech titan is one of the most important people in Silicon Valley, as he’s played instrumental roles in some of the most vital trends of our generation. 

He began his ascent into the land of billionaires when he co-founded PayPal in the late 1990s, the online payment platform that had made waves across the planet.

If that’s not enough, he went on to become the first outside investor in Mark Zuckerberg’s Facebook. Back in 2004, when the Facebook founders were brewing up this soon-to-be social media giant in a dorm room, Thiel made a $500,000 investment in Facebook with 10.2% stake in the company. This became the largest driver of Thiels fortune. 

Anyway, let’s move on to how Thiel (and other billionaires) are getting rich via their Roth IRAs. 

That’s what we all want to hear, right?

Tax-free investment earnings:

Roth IRAs are retirement accounts that allow for tax-free withdrawals based on specific criteria. They’re built up with after-tax dollars so that taxes are withdrawn before the money goes in.

Here’s the fun part, though.

Roth IRA accounts are funded by both contributions (after-tax income) AND earnings, and the gold (not literally) lies in the latter of the two. 

One of the most valuable tax benefits of a Roth account is that any growth that occurs from investments is tax-free

That means that account owners can compound untaxed wealth via dividends, a distribution of profits to shareholders. It’s important to remember that these accounts hold your investments rather than being investments on their own, ultimately allowing you to make your money work for you.

Investing via the Roth IRA is a wise financial hack that allows nifty individuals to build monumental, tax-free wealth.

The Roth IRA hack isn’t limited to anyone. You can do it too:

It’s possible for anyone who has a knack for or an interest in investing to set-up the same structure Peter Thiel used to create his $5B portfolio. 

Here’s the playbook: 

Step 1: Create a Self-Directed Roth IRA - There are a few companies that offer these services, I like Rocket Dollar (founded by two local Austin entrepreneurs...gotta stay loyal). AltoIRA is another player in this space.

Via this self-directed Roth, you can invest in many different asset classes - startups, cryptocurrency, precious metals, real estate, and many other assets, then benefit from the tax free gains.

Step 2:  Fund your account - Once the money is in there, it can never be taxed again 😁. 

Step 3: Invest - The next step is to start investing via your self-directed Roth IRA. Both platforms make this incredibly easy.

When you sell your shares, you keep your profits in the retirement account (tax-free!). 

To build your wealth, repeat again and again - reinvesting the earned money. 

 

To withdraw your investments prior to retirement, you pay a 10% withdrawal penalty, which for what it’s worth, is MUCH lower than the capital gains tax you would have paid.   

If you’re thinking about giving it a go, here are a few tips for investing through your Roth IRA: 

  • Be strategic about your investments. This one is obvious. If you haven’t invested before, be sure to do substantial research instead of diving headfirst. Through your findings, determine if the companies that you’re backing show signs of future growth. 
  • Patience is a virtue. If there’s anything that the aforementioned billionaires have in common, it’s patience and the ability to look to the long-term future. Investing can be rocky sometimes, but stay the course. Do your homework, stay educated, ask experienced friends for advice, and keep steady. Let go of instant gratification, but remember that it pays off in the long haul. 
  • Max out your contributions every year. Every year, the contribution limits change. Stay on top of new regulations and put as many dollars into your account as possible each year to get the most out of it. 

Investing through your own Roth IRA is available to anyone willing to explore and can lead to incredible benefits.