The Roth individual retirement account was created to assist middle-class earners in saving money for retirement. With no tax due on withdrawals, they are exempt from taxes. Peter Thiel, the PayPal founder, has used his Roth IRA for $5 billion.According to ProPublica's Internal Revenue Service data, Thiels Roth IRA had a value of less than $2,000 in 1999. Roth IRAs can be withdrawn tax-free because they are funded with after-tax money. Traditional IRAs are funded using pretax dollars so that distributions are not subject to tax at withdrawal.ProPublica discovered that the account increased in value by more than $3Billion in three years. This despite Thiel not contributing money to his Roth after 1999. It was worth $5 billion as of the end 2019Thiel, 53 years old, can withdraw all of his Roth account balances tax-free once he turns 59.You can see: I am still not on the Roth IRA bandwagon. Have you made these tax blunders.The Roth account balance of Thiels is quite different than that of everyday retirement savers. At the end of 2018, approximately 21.6 million taxpayers owned Roth IRAs, which collectively accounted for $845 billion. According to IRS data, this amounts to an average balance of $39,100.It is difficult to accumulate this amount in a Roth IRA. These accounts have a $6,000 per year contribution limit in 2021. For those 50 years and older, it is $7,000 Income restrictions are also in place. The IRS states that single individuals who have a modified adjusted gross income (MAGI) of less than $125,000 can contribute up to the limit. However, contributions will be phased out for those with MAGIs between $125,000-$140,000. Single taxpayers can't contribute to a Roth IRA if they make more than $140,000. The threshold for married couples filing jointly is $198,000 to $208,000 in 2021.ProPublica discovered that Thiel and other entrepreneurs used Roth IRAs in a different way than the average investor. ProPublica reported that Thiel purchased 1.7 million shares PayPal PYPL (+1.77%) in 1999 at $0.001 per share or $1,700.This strategy allows investors to purchase large amounts of shares in startups at fractions of cents per share. If these investments yield large gains, investors have the option to use the Roth IRA proceeds to make other investments. If the company goes public, and its share price soars, substantial gains can be realized.Because these sales were made inside a Roth IRA, the gains are exempt from tax.Also, see: Should your IRA be converted to a Roth if the Bidens infrastructure plan is passed?Roth conversions are also available to individuals. This is where money is taken from a traditional IRA, and then transferred into a Roth. The individual pays a one-time income taxes on the transfer assets. Because they work around income limits, these transfers are also known as a "backdoor Roth" because they allow money to be pushed into tax-free accounts.ProPublica reported that it reached out to Thiel seeking comment, but didn't receive one. MarketWatch also reached out to Thiel's spokesperson for comment.Critics say these accounts should be subjected to policy reform. After a story such as this, a threshold will likely be set because I believe that the goal was to help middle income people and lower-income persons have a nest egg in their future. Anthony Scaramucci, co-managing partner at SkyBridge Capital, and former White House communications director, stated to CNBC.Key Words (July 2017: There are many opinions on whether Scaramuccis sale to SkyBridge to a Chinese conglomerate is a conflict.
