Some of the biggest Roth IRAs in existence – and what you can learn from them | Smart Change: Personal Finances

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

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

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

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

However, Westchler’s IRA goes back further – to 1984, to be exact. Fresh out of Wharton as an undergrad, he went to work for the chemical company WR Grace as a financial analyst.

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

Over the next three decades, Westchler 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.

In 2018, the year ProPublica caught wind of his Roth’s existence, Westchler had amassed $264 million in his account. Remarkably, he revealed in a public letter that he “invested the account only in publicly traded securities” – meaning that, unlike Thiel, Westchler invested in assets that the average investor also had access to.

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

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

It is not a coincidence. When Westchler left WR Grace in 1989, just five years after launching his Roth IRA, he had just $70,385 in the account. Adjusted for inflation, that’s about $168,000 — a bit more than the average IRA balance of $134,900 in 2020.

Although this number is not to be overlooked, it is still far from the hundreds of millions it has today. To illustrate how scarce his account balance is, the Congressional Joint Committee on Taxation estimates that in 2019, only 497 taxpayers had IRA balances above $25 million. Of these “mega IRAs”, only 156 are Roth accounts.

If Westchler hadn’t continued to save and invest patiently for three decades after leaving his first employer, he would have a much smaller IRA balance — and certainly nothing like the wealth he possesses today.

Westchler had the more than three decades he needed to save and invest his fortune because he started early. When he opened his IRA, he was only 22 years old. Today he is 60, young enough to have all his retirement years ahead of him.

If he can live to Buffett’s age today, he will have another three decades to invest. If it continues to compose at 30%, it will have approximately 1,000 billion dollars at 90 years old! Even if he grows his money at a more realistic 10% CAGR, he’ll have more than $4.6 billion at his disposal, nearly 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 for the long term, aiming to get rich slowly. As Weschler himself put it, he envisions his Roth IRA as an “ambitious example of the power of deferred consumption,” which is “available to all taxpayers with a long enough investment trail.”

But it’s also good news for older investors who are just getting started. Although you may not live long enough to see your investments reach seven figures or beyond, you will give your descendants and heirs the head start they need to achieve 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 board member of The Motley Fool. Ryan Sze holds positions at Meta Platforms, Inc. The Motley Fool holds positions 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: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short put options in January 2023 on Berkshire Hathaway (B shares), short calls $265 in January 2023 on Berkshire Hathaway (B shares), and short calls of $57.50 in July 2022 on eBay. The Motley Fool has a disclosure policy.