Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account....

[pmac]

Has anyone done a similar move? Any recommendations on what company to use?

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

[MustacheAndaHalf]

Go back in time and co-found PayPal?  That's how Thiel had $1,700 in his Roth at one point, and then a few years later had $28 million.  Not an easy experience to replicate.

[ditheca]

Since few of us are going to found large corporations, it seems the moral here is simply to do your most aggressive investing inside a Roth. Due to the tax implications, you have the same risk but a better payoff.

[SeattleCPA]

Go back in time and co-found PayPal?  That's how Thiel had $1,700 in his Roth at one point, and then a few years later had $28 million.  Not an easy experience to replicate.

+1

I think the smaller lessons from this story are (1) sadly data isn't very secure at the IRS... (2) when you do tax planning you want to think about what the optics look like in case things go REALLY well.. and (3) planning (in this case tax planning) for a black swan event maybe makes a little bit of sense.

[pmac]

Go back in time and co-found PayPal?  That's how Thiel had $1,700 in his Roth at one point, and then a few years later had $28 million.  Not an easy experience to replicate.

Even though starting the next Paypal is tough for most of us, what about starting a "normal" company, buying the startup shares in your ROTH (at a super cheap level like Thiel did) and hoping to sell the company down the road???

Even a sale of $500,000-$2 million would make this strategy appealing....Even better if you can start the company and sell it within 5-7 years, and place the proceeds in the broader market to mitigate risk.


A $5 billion Roth is near impossible to achieve, but I think for most of us on this forum, $500,000-$1M is attainable.

[seattlecyclone]

To turn one year's worth of Roth contributions into $500k, you'd need your new company to provide a 100-fold return on invested capital. It's certainly possible for this to happen with a startup company, but investments at this stage are much more likely to go to zero than 100x. That's just the reality of seed-stage venture investing.

A $500k-$1 million Roth is pretty easily attainable. Just make maximum contributions into a stock index fund for a standard-length career. If you have access to the mega backdoor, it can be done in a decade.

[EvenSteven]

To turn one year's worth of Roth contributions into $500k, you'd need your new company to provide a 100-fold return on invested capital. It's certainly possible for this to happen with a startup company, but investments at this stage are much more likely to go to zero than 100x. That's just the reality of seed-stage venture investing.

A $500k-$1 million Roth is pretty easily attainable. Just make maximum contributions into a stock index fund for a standard-length career. If you have access to the mega backdoor, it can be done in a decade.

How are private start-up valuations determined with regards to putting it in a Roth? Could I create a private start-up with a million dollars of capital, decide it is valued at $6,000, and put it in a Roth, then sell the company for a million, and voila, a million dollar instant Roth?

[SeattleCPA]

Jeff Levine, a CPA and IRA expert who I have a lot of respect for says he thinks Mr. Thiel did NOT engage in prohibited transactions (which would have blown up the tax planning gambit we've now all heard about...)

But Jeff says (and I'm quoting my memory here) that he thinks the valuation looks off. I.e., $1700 investments don't turn into $5B investments.

Venrock for example grew $8M ish into $1.6B by hitting on companies like Apple and Intel. Venrock was (is?) the Rockefeller family VC fund.

[pmac]

Jeff Levine, a CPA and IRA expert who I have a lot of respect for says he thinks Mr. Thiel did NOT engage in prohibited transactions (which would have blown up the tax planning gambit we've now all heard about...)

Couldn't this kind of planning be good for somebody that puts the dividends of the ROTH IRA company stock back into the ROTH? A great way to avoid the double taxation of dividends on your company's earnings..

[Paul der Krake]

Jeff Levine, a CPA and IRA expert who I have a lot of respect for says he thinks Mr. Thiel did NOT engage in prohibited transactions (which would have blown up the tax planning gambit we've now all heard about...)

But Jeff says (and I'm quoting my memory here) that he thinks the valuation looks off. I.e., $1700 investments don't turn into $5B investments.

Venrock for example grew $8M ish into $1.6B by hitting on companies like Apple and Intel. Venrock was (is?) the Rockefeller family VC fund.

I saw this opposite view shared on Tax Twitter:
https://fairviewlawgroup.com/sdira/opinion-is-peter-thiels-5-billion-roth-ira-legally-valid-there-are-many-reasons-for-doubt/

It brings up complex ideas I didn't even know existed, so at this point I don't know what to think. Hopefully this goes to court and we get a conclusive legal opinion?

[seattlecyclone]

Yeah there are lots of interesting angles to investigate here.

But Jeff says (and I'm quoting my memory here) that he thinks the valuation looks off. I.e., $1700 investments don't turn into $5B investments.

Venrock for example grew $8M ish into $1.6B by hitting on companies like Apple and Intel. Venrock was (is?) the Rockefeller family VC fund.

I think Thiel was investing a bit earlier in the game than most VC companies would do. He bought his PayPal shares a month or two after the company was founded, a point at which the company could reasonably be valued at little more than the balance in its checking account. That investment grew to some $20 million by the time eBay bought it a few years later. That's a 10,000x return. Pretty astounding, but it's also well in line with what we see the very successful tech founders achieve.

The more astounding thing is he was able to hit it big again. He doubled down with a chunk of his PayPal winnings into Facebook and Palantir at a similar stage of their development. The rest is history.

Jeff Levine, a CPA and IRA expert who I have a lot of respect for says he thinks Mr. Thiel did NOT engage in prohibited transactions (which would have blown up the tax planning gambit we've now all heard about...)

But Jeff says (and I'm quoting my memory here) that he thinks the valuation looks off. I.e., $1700 investments don't turn into $5B investments.

Venrock for example grew $8M ish into $1.6B by hitting on companies like Apple and Intel. Venrock was (is?) the Rockefeller family VC fund.

I saw this opposite view shared on Tax Twitter:
https://fairviewlawgroup.com/sdira/opinion-is-peter-thiels-5-billion-roth-ira-legally-valid-there-are-many-reasons-for-doubt/

It brings up complex ideas I didn't even know existed, so at this point I don't know what to think. Hopefully this goes to court and we get a conclusive legal opinion?

One question I haven't seen addressed is if there's a statute of limitations for how long the IRS has to call out a prohibited transaction. The PayPal investment was over two decades ago at this point. I know there are three-year and six-year statutes of limitations that apply to most errors and omissions that people would make on their tax returns, but there are certain circumstances where the IRS can look back indefinitely. Is this one of those scenarios?

[MrThatsDifferent]

Interesting read that seems virtually impossible to duplicate. He’s just another greedy man feeding his ego and entitlement.