Thread by @propublica

Our latest from “The Secret IRS Files”:

How did Peter Thiel use a Roth IRA — a tax-free acct meant to help middle class Americans save for retirement — to amass $5 BILLION dollars*?

(*that he'll probably never have to pay taxes on)

A thread 👇

2/ While typical Roth holders stash some post-tax wages into an IRA & hope it grows over time, tax records reveal the @PayPal cofounder has used stock deals unavailable to most people to completely change the game for himself

Here’s the story:
propublica.org/article/lord-o…

3/ In early 1999, Thiel was the CEO of a tech startup. He decided to use a Roth to buy dirt-cheap shares of that company; a relatively small gamble.

But, it could result in a huge payout.

4/ Tom Anderson, founder of Pensco, the company that set up the IRA account for Thiel:

“I said, ‘If you really think this is going to be big, you know, you might want to consider this new Roth.’”

5/ The Roth IRA was created in 1997 to allow “hard-working, middle-class Americans” to save, tax-free for retirement.

6/ Unlike a traditional IRA, where taxes are paid when you withdraw funds in retirement, with Roths any cash taken out after you turn 59.5 years old is tax-free.

7/ To prevent the rich from using the Roth as a tax shelter, annual contributions were capped (initially at $2,000) and individuals making more than $110K/year were blocked from using them.

8/ When Thiel started his IRA, his income was $73K, putting him under the income limit. But he had one huge advantage most investors didn’t...

9/ He was using the Roth to buy shares of his own privately held company. What’s that mean? There was no public stock exchange putting a value on those shares.

10/ So.

👉 IRS records show that in 1999 Thiel purchased 1.7 million shares of his startup, which would soon become PayPal, for just $1,700 — a tenth of a penny per share.

11/ Even though Thiel's startup received millions in funding within months, Pensco still told the IRS these founders' shares were worth less than $1,700 at the end of 1999.

See where this is going?

12/ After that initial investment, Thiel never contributed any additional money to this Roth.

He didn't need to. It took on a life of its own.

👉 Within a year, that $1700 investment had grown to $3.8 million.

13/
👉 PayPal was sold to eBay in 2002. The proceeds from the shares Thiel sold stayed — tax-free — in the IRA, which grew to $28.5 million.

His financial assistant later described the maneuver:

14/ Had he held those shares in a normal investment account, Thiel would have owed the IRS 20% and another 9% to California.

But, because they were in a Roth, those millions remained untaxed.

15/ Thiel then used the wealth amassed in his Roth to invest in other startups, buying shares of private companies at bargain-basement prices before they went public. Companies like @Facebook and @PalantirTech

@Facebook @PalantirTech 16/ In 2004, he provided Facebook's first large outside cash infusion, investing $500K. His Facebook shares would grow tax-free in his Roth.

17/ With the growth of these and other investments, Thiel's Roth swelled to enormous proportions.

👉By the end of 2008, records show it had ballooned to $870 million.

18/ While it took a significant hit during the Great Recession, Thiel’s Roth more than rebounded in the subsequent years.

👉Records show that by 2019, it had grown to $5 billion.

19/
✋ Whether it continues to grow or not, whatever’s in that Roth in April 2027 — 6 months before Thiel's 60th birthday — can be withdrawn entirely tax free.

20/ Anderson, the founder of the company that set up Thiel’s Roth IRA, remembers saying in 1999 that if the PayPal investment ballooned, “‘you’re not going to pay tax on it when you take it out.”’

“It’s a no-brainer,” he recalls saying.

21/ A spokesman for Thiel accepted detailed questions on Thiel’s behalf, then never responded to @propublica’s phone calls or emails

22/ Thiel's IRA was by far the largest we found, but there are other ultrawealthy Americans with hundreds of millions sheltered from taxes in Roth accounts:

23/ Ted Weschler of Berkshire Hathaway had $264.4M in his Roth at the end of 2018. Randall Smith, whose Alden Global Capital has gutted newspapers around the country, had $252.6M

24/ Get the full story on Thiel’s $5 billion tax-free piggy bank here:
propublica.org/article/lord-o…

25/ If you have information or expertise that could help our reporters on The Secret IRS Files project, you can reach them securely here:
projects.propublica.org/tips/help-us-r…

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