An article was published in ProPublica today 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 (by Justin Elliott). The general idea of the article is to call attention to extremely large Roth IRAs and how they have been used by ultra-high-net worth individuals. ProPublica reporters reached out to me on several occasions to ask technical questions related to the legal and tax rules that govern IRAs that invest into “non-traditional” assets (e.g., private companies). I was entirely unaware at the time of those conversations that the article would be related to Peter Thiel or any other specific individual. Regardless, I regularly provide commentary to financial reporters – mostly because I feel it’s my duty to clear up all of the “internet garbage” that exists on this very niche legal rules that related to “self-directed IRAs”. It’s easy to question the validity of an extremely large Roth IRA, especially once it already exists. Of course, I cannot definitively say whether Mr. Thiel’s Roth IRA had any past legal or tax problems or not. However, I can say that the end result of high net worth individuals having extremely large Roth IRAs was entire predictable when “Roth conversions” were allowed (regardless of the IRA owner’s individual income level) starting in 2010. Blame Congress – and possibly the entire lack of oversight by the IRS over the past 20 years that self-directed IRAs have been flourishing. However, times might be changing, at least if Senator Ron Wyden has anything to do about it. [Also see my prior write-ups on the three “GAO” Reports on this subject; the GAO was directed to submit those reports by Senator Wyden].
Because the ProPublica article doesn’t dive very deep into the specific legal and tax rules that Peter Thiel’s Roth IRA might have (emphasis on “MIGHT”!) violated in the past, I will write a follow-up blog post on that subject. If nothing else, several aspects of Peter Thiel’s past Roth IRA transactions raises a cautionary legal tale (to counterbalance the tremendous potential financial gain) for any investor who is considering investing his or her IRA into non-traditional assets.