Last week, ProPublica published an investigation about how venture capital billionaire Peter Thiel has managed to turn a $2,000 initial investment int

Peter Thiel’s $5 Billion Roth IRA Tax Haven Is the Hottest New Investing Tip

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2021-07-06 02:00:07

Last week, ProPublica published an investigation about how venture capital billionaire Peter Thiel has managed to turn a $2,000 initial investment into a $5 billion fortune inside of a Roth IRA, a type of retirement account that allows money to grow tax free, meaning he will never pay taxes on his investment gains. The tactic used by Thiel is upsetting to people who would like to see the ultra-wealthy meaningfully taxed. The article hit different for another subset of people, though: Thiel’s strategy is now the hottest advice in the personal finance world.

The personal finance online media ecosystem consists of a large set of bloggers, podcasters, YouTubers, and TikTokers who give people common sense financial advice like “pay down debt,” “have an emergency fund,” and “invest money.” The hottest subset of personal finance influencers at the moment are those who are trying to help people achieve Financial Independence (FI), the point at which you can quit your job and live off your investment returns, money from rental properties, or other investments (this is also called FIRE—Financial Independence, Retire Early). 

The advice to achieve FI varies slightly from influencer to influencer, but one thing most everyone in the entire personal finance world is obsessed with is the Roth IRA, a type of retirement account created by Congress in 1997 that people can put post-tax money into (as opposed to pre-taxed money, like a 401k). The thing about a Roth IRA is that you pay tax on the money before you invest it (i.e., when you get it from your paycheck), but crucially you do not pay taxes on it when you take it out, regardless of how much that money grows over time. This means you can invest $5,000 when you are 20, let it grow at an 8 percent average rate of return for 35 years, and take out ~$183,000 when you’re 65, without paying taxes on all of the growth. This tax-free growth makes it one of the backbones of many investment strategies.    

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