Billionaire investor Peter Thiel has $ 5 billion in his tax-free retirement account, report says
Venture capitalist billionaire Peter Thiel has used a joint personal retirement account as his own “$ 5 billion tax-free piggy bank,” according to a new report from nonprofit news organization ProPublica .
Roth IRAs, which were created in 1997, are meant to encourage people to save money now and be able to withdraw it tax-free for retirement. People pay taxes on the initial income, but then they do not pay taxes on the capital gains accumulated by the assets in the Roth account.
ProPublica discovered that Thiel and other wealthy Americans used this structure to hide assets that are currently worth millions if not billions of dollars and could be withdrawn at retirement age tax-free, tax documents show. that he examined.
NBC News did not independently verify the documents, and ProPublica declined to disclose how it gained access to what it previously called a “vast mine of Internal Revenue Service data on tax returns. thousands of the country’s richest people, spanning more than 15 years. “
ProPublica does not allege any illegality of Thiel or anyone named in the article, but questions the effectiveness of a tax system that allows for what it calls “supercharged investment vehicles subsidized by US taxpayers.” “.
Thiel spokesman Jeremiah Hall did not immediately respond to NBC News’ request for comment.
ProPublica said the documents showed Thiel started a Roth IRA 22 years ago with assets that were worth less than $ 2,000 at the time. These assets are now valued at $ 5 billion. According to ProPublica, Thiel started the Roth IRA with his shares of his startup, PayPal, which he originally co-founded in 1998 as Confinity.
Senator Ron Wyden, D-Ore., Chairman of the Senate Finance Committee, criticized Thiel’s alleged use of the tax system to his advantage.
“IRAs were designed to provide retirement security for middle-class families, not to allow megamillionaires and billionaires to avoid paying taxes,” he said Thursday on a call with journalists.
Tom Anderson, the now retired advisor and chairman of PENSCO Trust Company who advised Thiel and other PayPal executives in 1999 on how to invest their first company shares, said Thiel had the idea to put the startup’s shares in a traditional IRA. But Anderson suggested that he use a Roth IRA instead.
“I said, ‘If you really think this is going to be important, you know, you might want to consider this new Roth,” ”Anderson said, according to ProPublica.
Anderson, when contacted by NBC News, did not dispute the characterization of ProPublica.
Thiel reportedly paid $ 0.001 per share of PayPal and bought 1.7 million shares – a “big stake for only $ 1,700.”
Three years later, in 2002, when eBay acquired PayPal, Thiel sold his 1.7 million shares but kept all the profits in his Roth IRA, ProPublica reported. At the end of that year, Thiel’s Roth IRA was worth $ 28.5 million, according to ProPublica. In 2004, when Thiel spent $ 500,000 and in return received a substantial stake in a fledgling Facebook, this also went into Thiel’s Roth IRA account. Thiel remains on the Facebook board.
Facebook did not respond to NBC News’ request for comment.
Tax experts said Thiel was clearly benefiting from Roth’s tax breaks. Annual contributions are capped, but capital gains on past investments are not.
“This is an extremely inappropriate use of the Roth IRA, even though it is legal,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy and former tax policy analyst for Senator Bernie Sanders, I-Vt.
“Lawmakers have said they are trying to encourage retirement savings and allow people to have a secure retirement, but what they are actually doing in some cases is making the rich richer. “said Wamhoff.
If Thiel had not used this technique, he almost certainly would have had to pay capital gains taxes to federal and state authorities in California, where he was living at the time, according to ProPublica.
Longtime tax observers are aware of this problem and even pointed out a 2014 report from the Government Accountability Office that illustrated the problem.
“Founders of companies who use IRAs to invest in unlisted stocks of their newly created companies can realize several million dollars in tax-advantaged gains on their investment if the company is successful,” the agency wrote, recommending that Congress examine the matter in more detail closely. “With no total limit on IRA accruals, the government forgoes millions in tax revenue.”