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Over 28,600 Americans own individual IRAs valued at over $5 million. What can these “mega IRAs” teach you about your own?.
Peter Thiel made a $1,700 contribution to a Roth IRA in 1999. He then used that money to buy 1 A start-up offering seven million shares at a penny each
That start-ups name? PayPal. When it was sold for $1 to the massive online auction site eBay 5 billion in 2002, bringing in a tidy sum of $28. 5 million. The Silicon Valley venture capitalist would reinvest millions from his Roth IRAs into a number of successful start-ups in the ensuing years, such as Palantir and Meta Platforms.
By 2008, Thiels Roth IRA would be worth $800 million. Additionally, by 2019, its value would have reached $5 billion, making it the biggest known IRA.
Regretfully, most investors are unable to employ Thiel’s strategy, which involved using Roth funds to buy stock in privately held start-ups. Who else, then, can investors who stick to traditional assets like ETFs and public stocks learn from?
The number of individuals with multimillion-dollar Roth IRAs has skyrocketed in recent years, raising concerns about potential tax loopholes and inequalities in retirement savings. This article explores this phenomenon, drawing insights from a ProPublica investigation and an Investment Company Institute (ICI) report on Roth IRAs.
Key Findings
- The number of individuals with Roth IRAs worth $5 million or more has tripled since 2011, reaching over 28,000 in 2019. This surge highlights the increasing use of Roth IRAs by wealthy individuals to shield their fortunes from income taxes.
- These mega Roth IRAs hold over $15 billion in assets, with tech mogul Peter Thiel boasting the largest known Roth IRA at $5 billion as of 2019. This concentration of wealth in tax-advantaged accounts raises concerns about fairness and the potential erosion of the tax base.
- Roth IRAs were originally designed to incentivize middle-class Americans to save for retirement. However, the current landscape reveals their increasing utilization by the ultra-wealthy, exacerbating existing retirement inequalities.
- The ICI report sheds light on various aspects of Roth IRAs, including investor demographics, contribution patterns, and asset allocation strategies. This information provides valuable context for understanding the growth and implications of mega Roth IRAs.
The Rise of Mega Roth IRAs: A Closer Look
ProPublica’s investigation uncovered the significant rise in mega Roth IRAs, prompting concerns about their impact on the tax system and retirement security. These concerns stem from the fact that Roth IRAs offer significant tax advantages: contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. This makes them particularly attractive for high-income earners seeking to minimize their tax burden.
The ICI report provides further insights into the characteristics of Roth IRA investors. It reveals that Roth IRAs are most commonly opened with contributions and are often held by younger individuals. Additionally, equity holdings figure prominently in Roth IRA investments, highlighting their potential for long-term growth.
Concerns and Potential Solutions
The increasing prevalence of mega Roth IRAs has sparked debates about their fairness and potential impact on the tax system. Critics argue that these accounts offer an unfair advantage to the wealthy and exacerbate existing inequalities in retirement savings. Additionally, the concentration of wealth in tax-advantaged accounts could erode the tax base, potentially leading to reduced government revenue for essential public services.
In response to these concerns, policymakers have proposed various solutions. Some suggest imposing contribution limits on Roth IRAs for high-income earners or eliminating the tax-free status of large withdrawals. Others advocate for stricter enforcement of existing tax laws to prevent abuse of these accounts.
The rise of mega Roth IRAs presents a complex challenge with significant implications for tax policy and retirement security. Understanding the factors driving this phenomenon and exploring potential solutions is crucial to ensure a fair and sustainable retirement system for all Americans.
Additional Resources:
- ProPublica Investigation: https://www.propublica.org/article/the-number-of-people-with-iras-worth-5-million-or-more-has-tripled-congress-says
- ICI Report on Roth IRAs: https://www.ici.org/pdf/ten_facts_roth_iras.pdf
Keywords: Roth IRA, mega Roth IRA, tax-advantaged accounts, retirement savings, wealth inequality, tax policy, Peter Thiel
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How Many Roth Millionaires Are There? A Deep Dive into the World of Mega Roth IRAs
Key Findings
- The number of individuals with Roth IRAs worth $5 million or more has tripled since 2011, reaching over 28,000 in 2019.
- These mega Roth IRAs hold over $15 billion in assets, with tech mogul Peter Thiel boasting the largest known Roth IRA at $5 billion as of 2019.
- Roth IRAs were originally designed to incentivize middle-class Americans to save for retirement. However, the current landscape reveals their increasing utilization by the ultra-wealthy, exacerbating existing retirement inequalities.
- The ICI report sheds light on various aspects of Roth IRAs, including investor demographics, contribution patterns, and asset allocation strategies. This information provides valuable context for understanding the growth and implications of mega Roth IRAs.
The Rise of Mega Roth IRAs: A Closer Look
ProPublica’s investigation uncovered the significant rise in mega Roth IRAs, prompting concerns about their impact on the tax system and retirement security. These concerns stem from the fact that Roth IRAs offer significant tax advantages: contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. This makes them particularly attractive for high-income earners seeking to minimize their tax burden.
The ICI report provides further insights into the characteristics of Roth IRA investors. It reveals that Roth IRAs are most commonly opened with contributions and are often held by younger individuals. Additionally, equity holdings figure prominently in Roth IRA investments, highlighting their potential for long-term growth.
Concerns and Potential Solutions
The increasing prevalence of mega Roth IRAs has sparked debates about their fairness and potential impact on the tax system. Critics argue that these accounts offer an unfair advantage to the wealthy and exacerbate existing inequalities in retirement savings. Additionally, the concentration of wealth in tax-advantaged accounts could erode the tax base, potentially leading to reduced government revenue for essential public services.
In response to these concerns, policymakers have proposed various solutions. Some suggest imposing contribution limits on Roth IRAs for high-income earners or eliminating the tax-free status of large withdrawals. Others advocate for stricter enforcement of existing tax laws to prevent abuse of these accounts.
The rise of mega Roth IRAs presents a complex challenge with significant implications for tax policy and retirement security. Understanding the factors driving this phenomenon and exploring potential solutions is crucial to ensure a fair and sustainable retirement system for all Americans.
Additional Resources:
- ProPublica Investigation: https://www.propublica.org/article/the-number-of-people-with-iras-worth-5-million-or-more-has-tripled-congress-says
- ICI Report on Roth IRAs: https://www.ici.org/pdf/ten_facts_roth_iras.pdf
Keywords: Roth IRA, mega Roth IRA, tax-advantaged accounts, retirement savings, wealth inequality, tax policy, Peter Thiel
Ted Weschler’s $264 million Roth IRA
Today, Ted Weschler works for Warren Buffett at Berkshire Hathaway. He got to know Buffett in 2010 and 2011 when he bid a total of $5 million to have lunch with him at a charity auction.
But Weschlers IRA is older—it was established in 1984, to be precise. After graduating from Wharton as an undergraduate, he started working for the chemical firm W R. Grace as a financial analyst.
At the time, the annual IRA contribution limit was $2,000. Every year, Weschler contributed the maximum amount possible, and his employer matched a portion of his savings as well. By the time he left W. R. When Grace founded his private equity company in 1989, his account consisted of little more than $70,000.
Over the next three decades, Weschler would produce a compound annual growth rate (CAGR) that would exceed Consequently, by 2012, the value of his IRA was $131 million. He converted his traditional IRA to a Roth IRA in the same year, paying $28 million in federal taxes, which left him with approximately $111 million in after-tax income.
By the year ProPublica learned about his Roth in 2018, Weschler had accumulated $264 million in his account. In an astonishing admission, he wrote in a public letter that he “invested the account in only publicly traded securities”—in other words, Weschler made investments in things that the typical investor could also access, unlike Thiel.
To be fair, Weschler stated that his investment performance was “definitely not an expected result.” Due to this reason, it would not be prudent for any investor looking to invest for retirement to underwrite a 10% compound annual growth rate (CAGR) over a number of consecutive decades. Even so, even if we ignore the returns, there are a few things the rest of us can take away from Weschler’s Roth investment strategy.
Building significant wealth takes a long time
There are other aspects of Weschlers Roth IRA that make it stand out besides its size. It’s also evident that he has had his retirement account open for a considerable amount of time—nearly 40 years, to be exact.
This is no accident. When Weschler left W. R. Grace had just $70,385 in his Roth IRA in 1989, barely five years after he opened it. That comes to roughly $168,000 after inflation is taken into account, which is slightly more than the average IRA balance of $134,900 in 2020.
Even though it’s not a small amount, it’s still a long way from the hundreds of millions he has now. The Congressional Joint Committee on Taxation estimates that as of 2019, only 497 taxpayers had IRA balances above $25 million, demonstrating just how uncommon his account balance is. Of these “mega IRAs,” a mere 156 are Roth accounts.
Weschler’s IRA balance would have been far smaller and he would not have any wealth at all if he had not patiently saved and invested for three decades after quitting his first job.
How many Roth IRAs can you have?
FAQ
Can you have millions in a Roth IRA?
What is a rich person’s Roth?
How many people have $5000000 in retirement savings?
What percentage of Americans own a Roth IRA?
How many millionaires have a Roth IRA?
At the end of 2022, the record number of Roth IRA millionaires stands at 280,300. This is notably higher than the 442,000 401 (k) and 376,000 regular IRA millionaires in 2021’s fourth quarter. Can millionaires have a Roth IRA? Yes, millionaires can have a Roth IRA, and a TFRA.
How many people have a Roth IRA?
They update a widely cited study from the Government Accountability Office that released figures on large IRAs in 2011. The new figures show that, as of 2019, nearly 3,000 taxpayers held Roth IRAs worth at least $5 million. (The total of more than 28,000 people holding IRAs of that size includes both traditional and Roth IRAs.)
Is a Roth IRA millionaire worth more than a 401(k)?
But there is a clear winner when it comes to net after-tax income: the Roth IRA millionaire. Only the Roth IRA allows for tax-free withdrawals from the account in retirement. In plain English, the Roth IRA with a $1 million balance is worth more than the same-sized 401 (k).
Are Roth IRA millionaires created overnight?
Roth IRA millionaires aren’t created overnight. The actions you take every year will compound and lead to your financial success. Let’s say you’re 23 years old and you contribute $6,000 to a Roth IRA every year for 40 years. Your total contribution would be $240,000.