Peter Thiel’s $5 billion Roth IRA is among the hottest retirement topics of the year.
The Silicon Valley CEO has reportedly stashed away money in a Roth IRA to grow his 1.7 million shares of PayPal (which he co-founded) in 1999, according to data published by ProPublica. His $1,700 starting investment was worth $3.8 million a year after. Now, he is sitting pretty on a $5 billion fortune that will be 100% tax-free if he does not touch it until after he is 59 1/2.
Although building a billion-dollar retirement is maybe not realistic for the average American, it is still a perfect occasion to research Roth IRAs and find out how you can enlarge your portfolio. Here are three lessons you can learn from Thiel’s retirement.
1. Get started now
Time is your gold path to success. The more time, the more your money can increase tax-free. Unfortunately, your time to give direct contributions to your Roth IRA will go away once your income gets past an annual limit.
When Thiel gave to his Roth IRA back in 1999, the max contribution limit was $2,000 for singles who had a modified AGI of under $110,000. He was eligible to use his after-tax money to contribute to his Roth IRA in exchange for lifetime of tax-free increases. By getting started early, he was able to watch his investments grow and use his increases to invest in other assets that might help him continue his strong growth.
2. Contribute a high amount
Thiel’s Roth IRA was limited at $2,000 in 1999. Now, the Roth IRA limits have been increased and given an opportunity to use more contributions to change your portfolio’s total value.
For 2021, most singles can give up to $6,000. Anyone over 50 can invest another $1,000 into a Roth IRA.
Although it could be tempting to just contribute small amounts to your Roth IRA right now, you will have more money to invest in assets you want if you contribute the max each year. If Thiel just put in $800 to his Roth IRA, he would have lowered his earnings in half.
3. Invest in good assets
To make your contributions work even better, you must invest wisely. You may not have shares of a private company such as Peter Thiel had, but you can grow wealth by buying well-selected publicly traded stocks.
Even if you only achieve an average return of 10% per year (which is not unthinkable), a Roth IRA might get you to the million-dollar level in around 30 years if you continue to contribute the maximum amount (this assumes that max amount stays at $6,000 or higher).