Warren Buffett, Peter Thiel, and other giant zero-rated Roth IRAs exposed

Warren Buffett had $ 20 million in his Roth account at the end of 2018. J. Comtesse / Getty Images

From Warren Buffett to Peter Thiel, America’s super-rich have been enjoying retirement plans designed for middle-class Americans for decades and have amassed millions, if not billions, of tax-free dollars in their savings accounts.

It’s the latest discovery in ProPublica’s ongoing survey of how the nation’s wealthiest avoid paying taxes. New disclosure, based on analyzes of confidential Internal Revenue Service data, focused on a particular investment tool, the Roth IRA (Individual Retirement Account), a type of savings account that allows employees to save a portion of their regular income and withdraw it tax-free after retirement.

Designed for middle-class taxpayers, Roth IRAs have a limit, currently $ 6,000, on how much one can contribute each year. At the end of 2018, the average Roth account had $ 39,108. But this is not the case for the super rich. By taking advantage of loopholes in the Roth conversion laws and making wise investments using Roth money, the capital gains of which are never taxed, “the accounts have turned into supercharged investment vehicles subsidized by US taxpayers.” , reported ProPublica.

At the end of 2018, Warren Buffett had $ 20.2 million in his Roth account, according to the report. His main lieutenant at Berkshire Hathaway, Ted Weschler, had $ 264.4 million in his Roth account. In an extreme example, Peter Thiel, the billionaire venture capitalist, had amassed $ 5 billion in his Roth in 2019 across 96 sub-accounts.

Most of these people’s exponential gains came from investments. In Thiel’s case, he opened his Roth account with shares in start-up startups. In 1999, (when Americans couldn’t contribute more than $ 2,000 a year to Roth IRAs), Thiel placed 1.7 million PayPal shares, valued at $ 0.001 each, in his account. In one year, the value of this stake has gone from less than $ 2,000 to $ 3.8 million.

Thiel then made similar investments in Facebook and Palantir. Both companies have experienced a meteoric rise over the years of Thiel’s detention.

Another strategy exploited by billionaires was the Roth conversion. A new law in 2010 allowed Super Riches to convert a traditional IRA into a tax-free Roth account with a one-time tax payment. Buffett converted $ 11.6 million that year, through ProPublica. His deputy, Weschler, converted $ 130 million.

In a written statement, Weschler said his Roth account relied on publicly traded investments and strategies available to all taxpayers, noting that he chose the investments carefully, had “exceptional luck” and had close four decades for the account to grow.

Neither Buffett nor Thiel have yet commented on ProPublica’s findings.

In a statement announcing his charitable contribution in 2021 last week, Buffett said his donations over the years have only resulted in about $ 0.40 in tax savings for every $ 1,000 donated. “My wealth remains almost entirely deployed in taxable businesses that I own through my holdings of Berkshire shares,” he said, “and Berkshire regularly reinvests its profits to further increase production, employment and income.”

How Warren Buffett and other billionaires are building a tax-free retirement fortune

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