Roth IRAs were especially difficult for the wealthy to access, mostly because their tax benefits are so potent: Once an investment is inside a Roth account, your gains are never taxed as long as you live. Even after you die, your heirs get to live off a Roth IRA’s tax-free bounty for a decade.

For ultra-wealthy Americans looking to get their fortunes within the cushy confines of a Roth IRA, the most extreme example may be billionaire Peter Thiel. According to a ProPublica report in June citing confidential tax records, he amassed $5 billion in a Roth — a feat accomplished by placing PayPal shares in his account in 1999, when it was a private company. Within a year, their value jumped from $1,664 to $3.8 million.

Thiel, who is worth more than $7 billion, according to the Bloomberg Billionaires Index, later used the Roth account to invest in similarly lucrative stakes in Facebook Inc. and Palantir Technologies Inc.

Tax-Free Growth
When clients bring up Thiel with Brandon Smith, director of estate planning at Wetherby Asset Management in San Francisco, he has to be real with them: “I don’t know that we can replicate that result. We don’t have access to early rounds of PayPal. But you will still get the benefit of tax-free growth.”

In Silicon Valley, filings show, startup founders and venture capitalists have tried to follow a strategy like Thiel’s. Dustin Moskovitz, the co-founder of Facebook whose net worth is more than $27 billion, has a Roth IRA that holds about $285 million in shares of Asana Inc., the task-management software company he co-founded in 2008, according to filings.

While building a multi-billion-dollar Roth IRA is a nearly impossible task, the super wealthy can easily steer millions into the accounts. The key is to first amass wealth in traditional retirement accounts, then convert them into a Roth IRA. Both are now possible thanks to Congress, which has steadily weakened the rules on IRAs over the past few decades.

A traditional IRA — along with a traditional 401(k)-style workplace retirement account, which works similarly and can be rolled over into an IRA — takes pre-tax dollars. By contributing, you lower your tax bill and the accounts can be invested and grow tax-free — at least for a while. At some point, starting at age 72 at the latest, you need to start tapping your traditional IRA, and those withdrawals get taxed as income to you.

A Roth IRA, and Roth 401(k)s, are a mirror-opposite of the traditional accounts: Contributions are post-tax dollars — which don’t lower current your tax bill — but, once ensconced in a Roth they become off-limits to the IRS for as long as the account exists, which can be up to 10 years after you die. Once you’re 59-and-a-half years old, withdrawals are tax-free. Even if you’re not that old, there are ways to access the money for expenses like college costs.

Contribution Limits
Officially, you can’t contribute more than $6,000 to your IRAs this year, or $7,000 if you’re over 50. Those who earn more than $208,000 can’t contribute to Roth IRAs at all. Basic 401(k) plans also have limits, of no more than $19,500 in employee contributions in 2021, along with a $6,500 “catch-up contribution” for those age 50 or over.

In reality, these limits don’t apply to affluent Americans who over the last 20 years have been granted other options which, added up, can put more than $100,000 a year into retirement accounts. Business owners, including professionals like doctors and lawyers who are partners in their firms, can save more by maximizing employer contributions, including by setting up multiple types of plans. Another option for business owners or partners is a cash balance defined-benefit pension, which can lower your taxable income while also putting hundreds of thousands of dollars per year into an account that can later be rolled over into a traditional IRA.