Some of the Biggest Roth IRAs Out There, and What You Can Learn From Them | Smart Switch: Personal Finance

(Ryan Sze)

In 1999, Peter Thiel contributed $1,700 to a Roth IRAusing that money to buy 1.7 million shares of a startup company at a tenth of a penny a share.

The name of that start-up? PayPal. When it was sold to the online auction giant eBay for $1.5 billion in 2002, Thiel made a $28.5 million windfall. In the years that followed, the Silicon Valley venture capitalist would reinvest the millions from his Roth IRA in several high-flying startups, including Palantir Y Metaplatforms.

By 2008, Thiel’s Roth IRA would be worth $800 million. And by 2019, it would be worth $5 billion, making it the largest IRA known.

Unfortunately, the maneuver used by Thiel — using Roth funds to buy shares in private start-ups — isn’t available to most investors. So who else can investors who stick to standard investments like public stocks and ETFs learn from?

Image source: Getty Images.

Ted Weschler’s $264 million Roth IRA

Today, Ted Weschler works for Warren Buffett at Berkshire Hathaway. She met Buffett by paying a combined $5 million at a charity auction to have lunch with him in both 2010 and 2011.

However, Weschler’s IRA dates back to 1984, to be exact. Fresh out of Wharton as a college student, he began working for the WR Grace chemical company as a financial analyst.

At that time, the annual IRA contribution limit it was $2,000. Weschler made the maximum contribution each year, and his employer also matched a portion of his savings. When he left WR Grace to start his private equity firm in 1989, he had just over $70,000 invested in the account.

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Over the next three decades, Weschler would generate a compound annual growth rate (CAGR) of over 30%. As a result, his IRA was worth $131 million in 2012. That same year, he paid $28 million in federal taxes to convert his traditional IRA to a Roth IRA, leaving him with about $111 million in after-tax funds.

By 2018, the year ProPublica learned of his Roth, Weschler had amassed $264 million in his account. Surprisingly, he revealed in a public letter that he “invested the account only in publicly traded securities,” meaning that unlike Thiel, Weschler invested in assets that the average investor also had access to.

To be fair, Weschler’s investment performance was, in his own words, “certainly not an expected result.” For this reason, it would be unwise for any investor today looking to invest for his retirement to subscribe to a 30% CAGR for several decades in a row. Still, there are a couple of things the rest of us can learn from how Weschler invested in his Roth, even if we look beyond the returns.

1. Building significant wealth takes a long time.

The size of the Weschler Roth IRA isn’t the only thing that stands out about the account. What’s also clear is that she’s had her retirement account for quite some time — nearly 40 years, in fact.

This is not an accident. When Weschler left WR Grace in 1989, just five years after starting his Roth IRA, he only had $70,385 in the account. Adjusted for inflation, that’s about $168,000, slightly more than the average IRA balance of $134,900 in 2020.

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While that number is nothing to scoff at, it’s still a long way from the hundreds of millions it has today. To illustrate just how rare your account balance is, the Congressional Joint Committee on Taxation estimates that, as of 2019, there are only 497 taxpayers with IRA balances greater than $25 million. Of these “mega IRAs,” only 156 are Roth accounts.

If Weschler had not continued patiently save and invest for three decades after leaving his first employer, he would have a much more modest IRA balance, and certainly nothing close to the wealth he has today.

2. Starting early is a superpower

Weschler had the three-plus decades he needed to save and invest his wealth because he started early. When he opened his IRA, he was only 22 years old. He is 60 today, young enough to have all the years of retirement ahead of him.

If you can live to Buffett’s age today, you’ll have another three decades to invest. If he continues to compound at 30%, he will have approximately $1 billion by the time he is 90 years old! Even if he grows his money at a more realistic 10% CAGR, he will have more than $4.6 billion, almost surpassing Thiel’s Roth IRA at its current size.

For investors who are still young, this is good news. Simply live below your means and invest the difference long-term, with the goal of getting rich slowly. As Weschler himself put it, he sees his Roth IRA as an “aspirational example of the power of deferred consumption,” one that is “available to all taxpayers with an appropriately long investment path.”

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But this is also good news for older investors who are just starting out. While you may not live to see your investments hit seven figures or more, you’ll give your descendants and heirs the head start they need for exceptional results. In other words, it’s never too late and it’s always a good time to start investing.

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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. ryan wed holds positions at Meta Platforms, Inc. The Motley Fool holds positions with and recommends Berkshire Hathaway (B shares), Meta Platforms, Inc., Palantir Technologies Inc., and PayPal Holdings. The Motley Fool recommends eBay and recommends the following options: Long $200 January 2023 Put Options on Berkshire Hathaway (B Stock), Short $200 January 2023 Put Options on Berkshire Hathaway (B Stock), Calls $265 January 2023 shorts on Berkshire Hathaway (B shares), and $57.50 July 2022 shorts on eBay. The Motley Fool has a disclosure policy.