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A Roth IRA: How You Can Save Millions in Taxes

In 1999, Peter Thiel—one of the co-founders of PayPal—had approximately $2,000 in his Roth IRA. By 2019, that same account held $5 billion.

tax withholding paperwork

That increase alone is astounding. But it’s even more so when you consider that his gains were legally tax-free.

Thiel is one of the hundreds of wealthy investors who have realized the tax-saving power of a Roth IRA. Using a Self-Directed IRA to hold his PayPal shares and choosing to pay his taxes upfront as part of a Roth account, Thiel was able to save millions.

While articles like this recent one from MSNBC often look at the investment actions of the ultra-wealthy with a skeptical eye, the truth is that this strategy is available to every investor. Thiel anticipated that his shares of PayPal (then a private company) might be worth something in the future, so he put them in a tax-advantageous vehicle.

Here’s the amazing thing. You can do the same.

If you follow our VBytes channel, you’ll have heard that Self-Directed IRAs are legal. And, in many cases, they can be a savvy investing strategy. As an investor, you can set up an IRA (Roth, Simple, SEP) as a Self-Directed account and use it to invest in alternative assets outside the stock market. 

This opens up the range of investment options to include private companies, real estate, and more. And, when paired with a Roth designation, it can be used as a tax shield for assets that are likely to appreciate in value.

If you’re new to the concept of a Roth IRA, don’t worry.

We’ve written up the entire history, as well as the pros and cons, of the Roth IRA in one of our previous posts. And, while this account type has income-based limitations, the Roth IRA is available to everyone, not just the super-wealthy. 

It’s important to note a few words of caution first. As the MSNBC article states, you’ll need to seek a specialized provider (like us here at Vantage). You’ll also need to follow all applicable tax laws, including rules on taking distributions from your Roth IRA account. 

Here’s the bottom line: the ultra-wealthy, like Peter Thiel, can often take advantage of tax-friendly accounts. Selecting the Roth designation with a Self-Directed account can save millions in taxes when their shares of private stock go public. 

But this investment strategy isn’t “gaming the system.”

And it’s not an illegal move. It’s a strategy available to all investors built into the U.S. tax code. And it’s an option regardless of the portfolio size if you know how to set it up. 

If you think a Roth IRA or Self-Directed IRA might be the right option for your investment strategy, we’d love to talk to you. We have a team of experts who can explain your entire range of portfolio options, especially those outside the traditional stock market. Contact us today to see how you can protect your retirement fund from unnecessary taxes.