In 2021, a ProPublica investigation revealed a story that almost sounds like a financial fable: PayPal co-founder Peter Thiel turned a simple $2,000 Roth IRA into a safe-deposit box worth over $5 billion… all tax-free.
How did a tool designed to help American families prepare for retirement – Individual Retirement Accounts (IRAs) – become the springboard for an extraordinary fortune? Here’s a step-by-step explanation.
What is a Roth IRA?
A Roth IRA is a special type of tax-advantaged retirement savings account. You deposit money into the account that is already taxed, your investments then grow freely within the account, and when you withdraw your earnings at retirement, starting at age 59 and a half, you have no further tax liability.
For the majority of Americans, these accounts are used to buy funds, Bonds or Stocks listed on the stock exchange, with relatively low annual contribution limits ($7,000 in 2025).
The aim is to ensure that savers don’t end up relying solely on Social Security for a decent retirement.
Peter Thiel’s brilliant, or scandalous, idea
In 1999, Peter Thiel opened a Roth IRA and invested in shares of PayPal, which he had co-founded.
The price at the time was $0.001 per share, a fraction of a cent. With just $1,700, he bought 1.7 million shares.
A few years later, when eBay bought PayPal, those shares were worth millions. As they are held in his Roth IRA, Thiel pays no tax on this gigantic capital gain.
The snowball effect
Buoyed by this initial success, Thiel reinvested his accumulated earnings in his Roth IRA. For example, he invested in shares of Palantir Technologies, which he had helped found, as well as in Facebook, which he had acquired very early on.
As these companies took off, the value of his Roth IRA exploded. In 2019, it was worth over $5 billion.
For comparison, a conventional Roth IRA, maxed out each year and invested in a simple S&P 500 fund, would have been worth around $258,000 over the same period, according to ProPublica’s estimate.
Why not everyone can do the same
At first glance, you might think that anyone could copy this “Thiel Strategy”. But in reality, it’s almost impossible for the average investor to do that, because :
- Most people don’t have access to private equity in promising startups.
- The law reserves this type of investment for so-called “accredited” (i.e. very wealthy) investors.
And even if you do have access, it’s rare to bet savings for retirement on a future unicorn like PayPal or Facebook.
Clearly, Thiel had both the right idea, the network and the good fortune to invest early in companies that were set to revolutionize the global economy.
A political and fiscal debate
Peter Thiel’s case has rekindled the debate on tax fairness. Have Individual Retirement Accounts (IRAs), designed to help the middle class prepare for retirement planning, become a bypass tool for a handful of billionaires?
For some elected officials, such as Senator Ron Wyden, the size of Roth IRAs should be limited, or it should be forbidden to hold shares in start-ups. Others feel that Thiel has simply made intelligent use of existing rules.
In the meantime, this case highlights a striking contrast:
- On the one hand, a quarter of Americans have saved nothing for retirement, according to a 2020 Federal Reserve study reported by ProPublica.
- On the other, a few investors are using the Roth IRA to accumulate billions entirely tax-free.
The lesson for the average saver
For the vast majority of Americans, the Roth IRA remains an excellent savings tool. While it won’t make you a billionaire like Peter Thiel, it does offer one key advantage: The ability to build capital for retirement, without fear of hefty tax bills down the road.
The moral? The “Thiel Strategy” can’t be reproduced for everyone, but it illustrates the importance of starting retirement planning early, diversifying investments and understanding tax rules.
Because even without 5 billion to play with, a Roth IRA can make the difference between a comfortable retirement and total dependence on Social Security.
IRAs FAQs
An IRA (Individual Retirement Account) allows you to make tax-deferred investments to save money and provide financial security when you retire. There are different types of IRAs, the most common being a traditional one – in which contributions may be tax-deductible – and a Roth IRA, a personal savings plan where contributions are not tax deductible but earnings and withdrawals may be tax-free. When you add money to your IRA, this can be invested in a wide range of financial products, usually a portfolio based on bonds, stocks and mutual funds.
Yes. For conventional IRAs, one can get exposure to Gold by investing in Gold-focused securities, such as ETFs. In the case of a self-directed IRA (SDIRA), which offers the possibility of investing in alternative assets, Gold and precious metals are available. In such cases, the investment is based on holding physical Gold (or any other precious metals like Silver, Platinum or Palladium). When investing in a Gold IRA, you don’t keep the physical metal, but a custodian entity does.
They are different products, both designed to help individuals save for retirement. The 401(k) is sponsored by employers and is built by deducting contributions directly from the paycheck, which are usually matched by the employer. Decisions on investment are very limited. An IRA, meanwhile, is a plan that an individual opens with a financial institution and offers more investment options. Both systems are quite similar in terms of taxation as contributions are either made pre-tax or are tax-deductible. You don’t have to choose one or the other: even if you have a 401(k) plan, you may be able to put extra money aside in an IRA
The US Internal Revenue Service (IRS) doesn’t specifically give any requirements regarding minimum contributions to start and deposit in an IRA (it does, however, for conversions and withdrawals). Still, some brokers may require a minimum amount depending on the funds you would like to invest in. On the other hand, the IRS establishes a maximum amount that an individual can contribute to their IRA each year.
Investment volatility is an inherent risk to any portfolio, including an IRA. The more traditional IRAs – based on a portfolio made of stocks, bonds, or mutual funds – is subject to market fluctuations and can lead to potential losses over time. Having said that, IRAs are long-term investments (even over decades), and markets tend to rise beyond short-term corrections. Still, every investor should consider their risk tolerance and choose a portfolio that suits it. Stocks tend to be more volatile than bonds, and assets available in certain self-directed IRAs, such as precious metals or cryptocurrencies, can face extremely high volatility. Diversifying your IRA investments across asset classes, sectors and geographic regions is one way to protect it against market fluctuations that could threaten its health.
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