A Propublica article published Thursday morning highlighted how tech mogul Peter Thiel turned a roth IRA account into a $5 billion dollar tax-free piggy bank. Anthony Scaramucci, founder and co-managing partner at SkyBridge Capital, joined “Squawk Box” on Thursday to discuss. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
Sometimes, it can seem like only rich people can benefit from the tax code.
Some ultra-wealthy individuals have amassed hundreds of millions — or even billions — of dollars in tax-sheltered Roth individual retirement accounts, according to a report released Thursday from ProPublica, an investigative news outlet. However, the strategy is generally available to anyone who wants to use it.
“The great thing about the Roth is that it’s everyone’s best tax shelter,” said Ed Slott, CPA and founder of Ed Slott and Company.
For traditional 401(k) plans and IRAs, you generally get a tax break when you make contributions and then pay taxes on the withdrawals in retirement. In contrast, Roth versions of those accounts come with no upfront tax break, but qualified withdrawals are excluded from federal income taxes.
While there are income limits set for who can contribute directly to a Roth, investors with higher income are able to convert assets in a traditional IRA or 401(k) — whose withdrawals in retirement are taxed as ordinary income — to a Roth.
Taxes are paid on the money converted, yet it then can grow tax-free and be withdrawn completely tax-free as long as you have held the account for at least five years and are age 59½ or older.
Among the billionaires who have exploited the rules for Roth IRAs is Peter Thiel, one of Paypal’s founders, whose account was worth $5 billion as of 2019 after a value of under $2,000 in 1999, according to the ProPublica report. (CNBC has not independently verified any details in the report.)
A self-directed Roth IRA
Thiel apparently used a self-directed Roth IRA to shelter his investments. This type of account comes with the same tax benefits as a standard Roth account — tax-free growth and untaxed distributions — but also allows you to invest in assets that are unavailable in regular Roth accounts.
For instance, a self-directed Roth IRA can hold investments like real estate or private company shares, the latter of which is what Thiel first held in his account in 1999 before PayPal was a publicly traded company, according to ProPublica.
Self-directed IRAs typically are only available through specialized custodians — not big financial firms like Fidelity Investments or Vanguard, which offer a broad range of investments such as publicly traded stocks, bonds, mutual funds and the like.
In contrast, custodians that hold self-directed IRAs have nothing to do with the investments you put in your account.
“They won’t police you,” Slott said. “They won’t advise you about breaking tax laws — that’s on you. You have to know what you’re doing.”
In addition, there are valuation issues, he said. While you can know the worth of publicly traded securities, some alternative assets are harder to value, and the onus is on you to get it right so you don’t run afoul of tax laws.
However, once the assets are in the account, you can sell them at some point — presumably at a profit — and use the proceeds to purchase other investments in the account, all under the tax-free Roth umbrella.
Even if a self-directed Roth IRA wouldn’t be a good fit for you, you’d still get the tax benefits if you invest through a standard Roth IRA.
“Anything you think has high growth potential should go in a Roth,” Slott said.
Roth accounts also can help avoid the uncertainty of where tax rates will be when you retire, Slott said.
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ProPublica’s recent report on Peter Thiel’s $5 billion Roth IRA has sparked controversy and raised questions about the fairness of the tax system. One figure mentioned in the report is Anthony Scaramucci, a prominent businessman and former White House Communications Director.
The report details how Thiel was able to amass such a substantial amount of money in his Roth IRA by investing in high-performing tech companies like Facebook and Airbnb at a very early stage. These investments grew immensely in value over the years, resulting in his Roth IRA ballooning to billions of dollars.
Anthony Scaramucci’s name appears in the report as someone who also took advantage of the tax benefits of a Roth IRA. According to ProPublica, Scaramucci had invested in his own hedge fund through his Roth IRA, allowing him to accumulate a significant amount of wealth in a tax-free account.
The report highlights how these investments and strategies, while legal, raise questions about the fairness of the tax system. Critics argue that wealthy individuals like Thiel and Scaramucci are able to exploit loopholes and tax breaks that are not available to the average American.
In response to the report, Scaramucci defended his use of a Roth IRA, stating that he had followed all tax laws and regulations. He also emphasized the importance of saving and investing for retirement, and how Roth IRAs can be a valuable tool for growing wealth over time.
The debate surrounding Thiel’s $5 billion Roth IRA and the involvement of figures like Anthony Scaramucci underscores the need for a closer examination of the tax system and how it can be manipulated by the ultra-wealthy. As calls for tax reform grow louder, it remains to be seen how policymakers will address these disparities and ensure a more equitable system for all taxpayers.
Its funny how bitter and envious ppl are quick to pick up their pitchforks and hang Peter thiel and other "greedy capitalists" because they have somehow convinced themselves that these ppl are undeserving of their wealth, notwithstanding the effort, work and risk they put in. But the same ppl have no problem when talentless socialites and celebs make exorbitant amounts of money for nothing.
God wants one on one with you Anthony get into silent prayer for the devil wont here
Scaramucci: there is no society in history that imposed a wealth tax.
1917 Bolshvekis: yo mooch what are we chop liver?
Give it up people. He earned it. I smell jealousy from everyone who is not as smart.
Instead cheer him on and learn from him. Don’t let the socialists and communists take control.
Let's go wealth tax!!
Peter Thiel is a genius. Wealthy people figure out how to stay rich. Poor people figure out how to buy the newest fashion item.
If the man followed the law to acquire great wealth if the people aren’t smart enough to educate them selfs that’s a personal problem
Peter Thiel is a great intellectual. He deserves a every penny. Instead of discussing whether he deserves it or not, educate yourselves.
Switzerland has a wealth tax
The 2 clowns…
All intra-country wealth transfer taxes should be replaced with only wealth taxes. Wealth-transfer taxes should apply to cross-border transfers of anything with value.
Why cant middle income people eventually be wealthy ? The C in CNBC must stand for COMMUNIST
The fallacy of tradition. The rhetoric of neoliberalism is simple.
I have tried to understand this issue. But I can't make heads or tails out of it.
What is this Roth IRA.
Is it that someone deposits money in it like a checking account and is not permitted to touch it until he retired while earning interests on his deposits?
Or is something in which an individual can put in his stock holdings and designate it to be Roth IRA account.
What exactly is this?
If it's the former then a lot of questions have to be answered by Theil.
If it's the latter then no crime has been committed and this is just a hit job against him. Because stock can be valued at .01 cent at the time of deposit. Which later on can appreciate in value to any amount.
My argument is don't hate the player for playing the game. Hate the game.
Please fire Joe.
Sincerely, All Millennials
It's incredible how US elites can take whatever they want; influence, land, oil…you name it and they just take what they need from where they need it
But when it comes to wealth taxes not even WMDs would get them to pay their fair share…
So your putting a cap on gains???? Because he didn’t invest 5 billion, it grew to that point.
I don't think that there is any other legitimate way to earn money nowadays rather than investing,I'm seeking a way to make money of trading a few thousand euros investing in forex or crypto
500,000 Jobs lost per week but 700,000 gain for the month and REAL INFLATION >20% !!
Pitchforks at the ready
Imagine going after Peter Theil for doing something thats not illegal, and then doing it under guise of saying its socially wrong… its Crazy, if i was Peter I would be launching a defamation case, because all this is, is creating negative opinion about him on a person level…. Peter Is smarter then the lot of you and this hit piece obviously has underlying benefits for you or you have been asked to attack him because hes only person talking out about Silicone Valley been a woke society of overlords who really dont give any benefit to their customers, because their company's take our data and use it against us. With out Peter, you dont have PayPal, You dont have Palantir who has saved probably millions of lives, you dont have Bin Laden, Whats google done lately…?, They refuse to work for the American government, they helped sensor the Chinese people, I mean its the best search engine in the world, but their core business is taking our data and using it against us.. Least Palantir provides value to their customers, and gives them the ability to mine their own data. Very Disappointed in this attack as someone who has studied Peter Theil, 5 Billion is chump change compared to the rest of the billionaires profiting off our own data, providing no real benefit to society… isn't America is 28 trillion of debt.. alot of BS<
The government is broke so they need a Peter Thiel story to show how unfair a Roth is. Thievery
Leave it to Peter Thiel to ruin Roth for the rest of us. Gee thanks Peter.
Peter should leave it in the Roth until he dies. It may grow to hundreds of billions. He was/is only following the law.
Why was Thiel's purchase of greatly undervalued Paypal stock (a company he co-founded) in his ROTH IRA a company Not considered a Prohibited Transaction under IRC 4975. To me he would be defined as a disqualified person under the IRC Code and this undervalued transaction would then be in IRC 4975 violation making that whole contribution taxable to him. I don't get why that was not pursued. It's a party in interest transaction by a company fiduciary. Very flaky?
If we wanted to incentivize hard work over laziness we'd tax capital gains at a higher rate than labor based income. Don't worry bootlickers, the Romneys, Kochs, Bezos, Soros off the world will hardly notice the loss of 1 or 2 less housekeepers at one of their 5 homes.
Don’t tax the rich. Tax those poor people getting paid in cash.
Anthony is a sleaze ball
This guy has three faces and would stab his grandmother in the back…. Mooch moochie Mooch can you do the screw you tango
Mooch is a snake
Want to incentivize work… eliminate income tax and put in a wealth tax. Simple.
Seems like Peter Theil made a smart investment that was perfectly legal. I don’t understand the FUD that things need to be changed with Roths. Makes no sense.