Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets. Today we're going to focus on the insight and the radical personal finance side of things, the radical side of things, while we discuss Peter Thiel's $5 billion Roth IRA.

And I'm going to try to provide in today's show some insight into the recent article written about this Roth IRA so that you will see how Thiel allegedly has done this and how you can model what he has done in your own Roth IRA and in your own life.

In today's show, I will be referencing an article published at ProPublica.org. The link is in today's show notes. The article came out on Friday and it is called "Lord of the Roths, How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class into a $5 Billion Tax-Free Piggy Bank." It's a phenomenal article and it is quite interesting as fodder for us to look at, analyze, and learn from.

Now ProPublica is in the process of publishing a series of tax articles. They have obtained a confidential data dump of IRS records from some of the wealthiest US American taxpayers and they are going through and analyzing that data and publishing articles about what these people are spending their money on, how much they're making, what's happening to their assets, etc.

And while this particular article does not seem to lean heavily on that data, it's in the same line of things. And ProPublica is quite evidently advocating for changes in the system of taxation used in the United States of America. They're quite obviously advocating for increased taxes on the people who are rich in the US.

And so that's obvious all through and through. I'll spend a short time talking about that, but not a lot. Because what's more interesting to me is to talk about what Teal has actually done and how you can do much the same thing. Because when you get down to it, whenever you have access to information about how someone else has been phenomenally successful, you can basically choose one of two approaches.

Approach number one is to be mad at them for some reason about what they've done, why they've done it, and how unfair it is that they have done it. Or you can say, "Let me learn from what they have done and see how I can apply the same principles to what I'm doing." And especially in things like this, where you have private information that you don't generally have access to.

If you'll just follow the clues, you can learn how to repeat, at least to some degree, what Teal has done with your own finances. I'm going to be skipping around extensively in this article, skipping massive portions. I would encourage you to read the whole article. It's quite interesting. I just need to respect, of course, their copyright and also respect your listening time.

Let's begin with the subheading. Roth IRAs were intended to help average working Americans save, but IRS records show Teal and other ultra-wealthy investors have used them to amass vast, untaxed fortunes. Let's pause for a moment. One of the things that you'll see throughout this article is people simply recognizing that wealthy people are not second-class citizens to whom some special set of rules applies.

I find it so funny that in tax arguments, people always say, "Oh, there's a tax code for the rich and a tax code for the poor." My answer is, "Absolutely not. There's one tax code and one set of tax rules." Now I do sometimes say there are two tax codes.

There's a personal tax code and a business tax code because that's true, and you want to use the business tax code as much as you can, but there is no different tax code that applies to somebody who makes $100,000 a year that doesn't apply to somebody who makes $100 million a year.

There is no different tax code that applies to somebody with $10,000 of net wealth than to someone with $10 billion of net wealth. They are exactly the same. I point this out to you because you need to recognize that if you want to become wealthy, you've got one tax code to use, but you will need to learn to use it in the way that a wealthy person uses it.

Again, what I find remarkable about this tax article and other tax articles that I have analyzed for you is there are virtually no allegations of impropriety. This article, I say virtually none, because in this article intimates that perhaps Thiel's valuation of PayPal stock was too aggressive. We'll get to that in a few minutes, but it doesn't say anything is illegal, and the idea that his valuation of PayPal stock was too aggressive, that's a matter to be settled between the IRS and Thiel, because again, as we'll discuss in a moment, this is a notoriously difficult area of finance to apply any kind of reasonable valuation to shares of a company that's not making much money, if money at all.

What you need to learn from this is that what Thiel did and what other ultra-wealthy investors do to allow them to amass vast untaxed fortunes is to read the rules of the tax code, and/or what's more accurate, pay people who read the rules of the tax code and then give them advice.

People who seek out good advice tend to make better decisions because they're fully informed. An average person hears about something called a Roth IRA and does nothing about it. An above average person hears about something called a Roth IRA, looks into it, and opens one but uses it in the traditional way.

They go buy a Vanguard stock market index fund, stick it in their Roth IRA. A person who is genuinely committed to above average results hears about something called a Roth IRA, thinks about it, and considers how it could be useful for them and how they could arrange the circumstances of their life to use such an account.

And then they recognize that you would be crazy in most circumstances to put something like an index fund, which is exceedingly tax efficient, into a Roth IRA when you could put something in that has mega upside potential, like a private company, and is also highly taxed like shares in a large private company, and you put that asset into a Roth IRA.

Excellent people think about how they can manipulate their circumstances in order to take the best advantage of what they're doing, and thus they get above average results, or in Thiel's case, about a bazillion times above average results. The fact that Congress decided to create an account to help average working Americans save is utterly meaningless.

The fact is they created a law, a set of rules, and any person who is bound by that law or those rules can choose to follow that law and those rules to their own benefit. And smart people educate themselves about the laws and the rules and think about how they can use them for their own benefit.

Rich people are not second-class citizens who somehow don't have the same rights as you and I. This is what bothers me, because in the United States of America, where I sit right now, in the United States of America, we're generating massive conflict in society. We're pitting this group against that group, and one of the most popular groups to always pit people against is wealthy people.

Why is it popular? Well, because in any society, you will always have 20% of the people who own 80% of the wealth. So, by definition, if you can get people inflamed by political passions, and if you can remove from those people any sense of principledness, meaning what's yours is yours, rather, let's get them, go and get them, because they have more than me.

If you can eliminate that egalitarian sense of principle, that sense of ethic that treats each person as an individual being and says, "You can have what's yours if you've earned it fair and square, if you've followed the rules, et cetera," you can always get 80% of the people on your side against the 20%.

That's why populism is so effective. And then you can narrow it down, right? Because the top 20% of the top 20%, meaning the top 4%, is always going to own 80% of the bottom 80% of the wealth. So, you wind up with the top 4% owning, what is that, 64% of the wealth.

And then the top 20% of the top 20% of the top 20% will own the 80% of the 80% of the 80% of the wealth, et cetera, until you get this disparity where you have 0.1% of the people who own 50% of the wealth. That's how most societies work.

And so that's the normal distribution of wealth. That's the normal distribution of income. That's the normal distribution of peas in a garden. And yet, if you will talk about that, you can get people on your side, and that's what's happening here. ProPublica is fanning the flames of populism by going against Peter Thiel, even though Peter Thiel has done nothing wrong, at least that they've reported on.

Let's skip down to the core of the argument. Over the last 20 years, Thiel has quietly turned his Roth IRA, a humdrum retirement vehicle intended to spur Americans to save for their golden years, into a gargantuan tax-exempt piggy bank, confidential internal revenue service data shows. Using stock deals unavailable to most people, Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall.

Now, does it matter what a politician intends in a law? Does it matter that politicians intended that a Roth IRA would be a humdrum retirement vehicle intended to spur Americans to save for their golden years? Doesn't matter what they intend. What matters is what they write. What matters is the text of the document that spells out the rules.

Now, either fortunately or unfortunately, I'm not sure, politicians are generally… I really want to say they're stupid, but they're not stupid. Politicians are generally a bit myopic, in the sense that they don't understand what's likely to happen if they put in place a rule. It's kind of like the best example is the classic cobra effect.

As the story goes, there was a town in India where there were a lot of cobras. So somebody, a politician or a leader came in and said, "You know what? We've got way too many cobras here in this town. We should pass a law to get rid of all of these dangerous cobras.

After all, there are too many cobras in the streets. So what we'll do is we will incentivize people to kill the cobras and bring them to us so that we can get rid of the cobras in the streets." So the politician passes the law and the people start bringing in cobras.

But a few months later, there's just more and more cobras coming in all the time and they're trying to figure out, "How are these people getting… Where are they getting all these cobras?" And yet there's still tons of cobras out there. Well, lo and behold, when the government incentivized the people to bring in cobras, people recognized, "I can make a little bit of money." And so they went ahead and they started breeding cobras.

And they started creating and manufacturing and breeding more cobras so that they could sell them and make more money. Well, then of course, the politicians recognized, "Well, that didn't work. We got to get rid of this. So we're going to stop the program of paying for the cobras." So they stopped paying for the cobras, which meant that all the people with lots of cobras that they had bred were left with a house full of cobras.

So what do they do? Well, they dumped the cobras outside and now you wind up on the other side with far more cobras than you ever had in the first place. And this is often what happens with politicians. They have the very best of intentions, but they have a God complex that says, "I can solve this." And so they create something, but then on the other side of it, the results are not quite what was anticipated, which is why any kind of positive action, especially that's not driven by the market, is often quite dangerous.

And then because you don't have a market system that can respond, rather you have a governmental system that's set in stone, you wind up with unanticipated results. Using stock deals unavailable to most people, Thiel has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall.

Now perhaps you, like me, look out for any way that you can figure out how to grow your money. And when someone comes along and makes a statement, like someone has taken a retirement account worth less than $2,000 in 1999 and spun it into a $5 billion windfall, your ears perk up and you say, "How on earth did they do that?

And just how much of a rate of return is that?" So I did the math. If you're interested, if you have a $5 billion future value and a $2,000 present value, you put in 22 years, 22 periods in between, with no additional payments and you solve for your rate of return, the answer is 95.35% annual rate of return.

If you can put $2,000 into an account, grow it at 95.35% every year for 22 years, you too can turn $2,000 into $5 billion, which is absolutely utterly remarkable. To those who say you can't beat the market, you ought to identify what Peter Thiel did. Now here's of course what he did.

Of course I used a little slight of word there, slight of mouth when I said you can't beat the market. He invested in private company, which is why, forgive me, I suffer tremendous confirmation bias reading this article, but this is why I point out to you again and again and again that your best investments are generally going to be in things that you know and/or things that you're involved in.

How did Thiel get a 95% rate of return? Well, the answer is PayPal that he was involved in, Facebook that he was connected to, and his hedge fund that he built that was investing in things that he knew, and he made a tremendous growth rate in his portfolio. Notice also, however, that he did this, this tremendous growth rate with a relatively small amount of money.

As we continue through the article, I'll go through the timeline with you. What's most important about the timeline is simply that he could not repeat this today with a $5 billion portfolio because now he's got too much money that there aren't enough opportunities for him to continue this 95%, but he hit things just in this magically correct way.

They go on to talk about that the average Roth IRA is worth $39,108. That's meaningless. Whenever anyone uses the word average, by the way, you need to immediately ask yourself whether that's a mean calculation or a median calculation, and you never know, but you can have a, in that $39,000 number, it's probably a mean calculation.

You've got the guy with $2,000 that he stuck in years ago, and you got Peter Thiel with $5 billion, but we don't know if that's a mean number or a median number. But it is spectacular, the opportunities that exist for him. Here's what they say. To put that into perspective, here's how much the average Roth was worth at the end of 2018, $39,108.

And here's how much $5 billion is. If every one of the 2.3 million people in Houston, Texas were to deposit $2,000 into a bank today, those accounts still wouldn't equal what Thiel has in his Roth IRA. What's more, as long as Thiel waits to withdraw his money until April 2027, when he is six months shy of his 60th birthday, he will never have to pay a penny of tax on those billions.

ProPublica has obtained a trove of IRS tax return data on thousands of the country's wealthiest people covering more than 15 years. This data provides, for the first time, an inside look at the financial lives of the richest Americans, those whose stratospheric fortunes put them among history's wealthiest individuals. What this secret information reveals is that while most Americans are dutifully paying taxes, chipping in their part to fund the military, highways, and safety net programs, the country's richest citizens are finding ways to sidestep the tax system.

Now here's what angers me, and forgive me, I'm going to let myself go for just a moment. The average American is absolutely not dutifully paying taxes, chipping in his or her part to fund the military, highways, and safety net programs, if by that you mean not contributing to a Roth IRA.

Because the reality, as an experienced financial planner, is this. The average American is dutifully putting as much money into his or her Roth IRA every year as he or she can, in addition to as much money into his or her 401k every year as he or she can. Which is far worse, because every contribution dollar that goes into a 401k or a traditional IRA is a dollar that is completely free from any tax money that is being used to fund the military, highways, and safety net programs.

While every dollar that goes into a Roth IRA every single year is a dollar that has been taxed to contribute to the military, highways, and safety net programs. So the statement is just flat out stupid on its face, because average Americans are the ones contributing to Roth IRAs. Wealthy people cannot generally contribute to Roth IRAs because they make too much money.

They make more than the contribution limits, thus they cannot contribute to a Roth IRA. The most they could hope to do is a so-called backdoor Roth IRA, and for the average wealthy person it's just not worth hassling with. Unless you have the ability to make a massive rate of return by early stage startup investing, something like that, it's just not worth hassling about, generally speaking.

Now to finish their sentence, the country's richest citizens are finding ways to sidestep the tax system. Which is absolute baloney, because the country's richest citizens are finding ways to work within the tax system so that they can pay lower taxes. Rich people generally do not evade their taxes. It's poor people who make money in tips and side work and don't report the income who evade their taxes.

The country's richest citizens are simply trying to get good tax advice from professionals who will read the law and follow it. One of the most surprising of these techniques involves the Roth IRA, which limits most people to contributing just $6,000 each year. Then they go on. I'll just read it.

The late Senator William Roth Jr., a Delaware Republican, pushed through a law establishing the Roth IRA in 1997 to allow "hard-working middle-class Americans to stow money away tax-free for retirement." The Clinton administration didn't want to give a fat tax break to wealthy people who were likely to save anyway, so it blocked Americans making more than $110,000 per year from using them and capped annual contributions back then at $2,000.

Yet from the start, a small number of entrepreneurs, like Thiel, made an end run around the rules. Listen to this. Does this sound like an end run? Open a Roth with $2,000 or less. Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value.

Pay just fractions of a penny per share, a price low enough to buy huge numbers of shares. Watch as all the gains on that stock, no matter how giant, are shielded from taxes forever, as long as the IRA remains untouched until age 59 ½. Then use the proceeds still inside the Roth to make other investments.

Is there an end run around the rules? If there is one, it is exclusively this concept of their use of the word "sweetheart deal" to buy a stake in a startup. The intimation with the term "sweetheart deal" is it's an inside deal. It's your ability to go in and say, "Hey, this is really worth millions of dollars, but we'll give it to you for mere thousands." Do sweetheart deals exist?

In my experience, probably not much. What does exist is a community of people who talk about those deals, a community of people who are willing and ready to put money into those deals, who are actively investing in early stage businesses. Many of us have been offered the true sweetheart deals.

I have. You have a friend of yours that starts a company, is working day and night to try to do it, quits his job, trying to get this company going, says, "Man, I really need $40,000. What do you need it for? I need it so I can pay my rent so I can keep building my company." That's the truth.

The guy who gives him a check for 40 grand in exchange for 300,000 shares of his company valued at half of a cent per share or a tenth of a ... whatever, I didn't do the math. That's the guy who gets a sweetheart deal. There's massive risk of failure with that.

This same organization, ProPublica, is the same kind of organization that will be quick to run articles about how businesses fail and how risky it is to start a business, etc. It goes on. Let's continue. Next paragraph. About a decade after the creation of the Roth, Congress made it even easier to turn the accounts into mammoth tax shelters.

It allowed everyone, including the very richest Americans, to take money they'd stowed in less favorable traditional retirement accounts and, after paying a one-time tax, shift them to a Roth where their money could grow unchecked by Uncle Sam, a Bermuda-style tax haven right here in the United States. Why do you think Congress passed that law?

Why do you think Congress made it easier for people with retirement accounts to pay the tax now and convert the accounts into Roths? The obvious answer is we don't know, unless you're in Congress and you were involved in talking to all the different Congress critters that you could. We don't know.

I think Congress did that because they needed tax money. They're looking down at these retirement accounts and they're saying, "These retirement accounts aren't going to be taxed for years down the road. Our budgets are a mess. We need tax money. If we allow people to go ahead and convert their accounts now and we take away the income limits, they'll pay us taxes now when we need it and we can always change the rules later and tax them down the road." That's why I think they've done it.

But wealthy people sit down and they try to figure out, "You know what? What could we apply for? What could we do? Should we pay the tax now or save it for later?" And they recognize, many of them, that the United States government is headed in a very bad direction fiscally and they say, "You know what?

I think taxes are going to go up. I'll go ahead and pay the tax now when I know the number because I think it'll probably be higher later and I don't know what that later number would be." So they pay the tax now. Who's at fault? Congress changed the law.

Rich people just read it and followed it. By the way, in the next paragraph we find a little bit of information about this series, which is quite interesting. I had not understood in the first article how much data ProPublica was given with the data dump from the IRS. But early in the article you notice they said, "We had thousands of tax returns." Here, they say this, "To identify those who have amassed fortunes in retirement accounts, ProPublica scoured the tax return data of the ultra-wealthy for IRA accounts valued at more than $20 million." I don't know how many they have.

They go on to talk about Warren Buffett. Sorry, Ted Weschler, a deputy of Buffett, has $264 million in his Roth. Hedge fund manager Randall Smith has $252 million in his. Buffett evidently has a Roth IRA with $20.2 million in it. Robert Mercer, $31.5 million in it. It's insane that they have this data, but they do and so we can have those numbers.

I don't understand how it adds for them to put this data out of random people. And now here I am repeating it on a podcast of how much money they have in their retirement accounts, but that's the path that they have chosen to take. So let's talk about how he actually did this, which is the most interesting thing.

How did Thiel do it? Well, here's how. Until in 1999, Thiel was running a small hedge fund and he was working at... Well, let me read it. One day in early 1999, a deputy of Thiel's at the company that would become PayPal walked into the San Francisco office of Pensco Pension Services.

It could have been an uneventful appointment. Instead, it changed Thiel's life. Thiel, a Stanford Law graduate, ran a small hedge fund and hadn't yet joined the ranks of the ultra wealthy. But he had outsized ambitions for his months-old tech venture, where he served as both chairman and CEO. He envisioned his company creating "a new world currency free from all government control." Influenced by libertarian Ayn Rand and Tolkien's fantasy trilogy, Thiel, then in his early 30s, carried himself like a contrarian philosopher king.

A few years earlier, he had co-authored a Jeremy ad against multiculturalism that accused the administration of then-president Bill Clinton of waging class warfare. Taxing the rich seems to have become an end in itself, he and his co-author wrote. Pensco was a small firm that allowed its customers to put nearly any investment they wanted into a tax-advantaged retirement account.

Thiel was about to become Pensco's whale. By the way, there's the intimation there that that's somehow illegal. There's lots of companies that do it. Illegally, you can put almost any investment that you want to into an IRA. There are only a few prohibited investments, such as life insurance, personally owned property that you're actively using and benefiting from, and a couple others.

But outside of those, you can put almost any investment into an IRA. In an interview with ProPublica, Pensco founder Tom Anderson recalled how Thiel and other PayPal executives had wanted to put startup shares of the company into traditional IRAs. Anderson dangled something sweeter. "I said, 'If you really think this is going to be big, you know, you might want to consider this new Roth,'" recalled Anderson, who is now retired.

"If the investment ballooned," he remembered saying, "you're not going to pay tax on it when you take it out. It's a no-brainer." The math was compelling. Thiel wouldn't get a tax break up front, but he'd avoid an immense tax bill later on if the investment surged in value. They immediately grasped that, Anderson said, and they did it.

So once again, let's put this into context. Here you have a group of smart business guys, hungry, aggressive smart business guys. They want to change the world and they say, "We think we have an idea for how to do it." So they're trying to figure out how do we profit from this?

What do we do? And the idea, of course, is, well, we want to save on taxes because the taxes are a major, major cost to us. So we have this IRA. But look, Congress just passed a new tax incentive called a Roth IRA. And the tax incentive that Congress has passed works like this.

If you put, if you earn money and you pay taxes now, and you can put some money, up to $2,000 in a year, into this account, and then by putting this amount of money into this account, you now have the ability to take the money out later, after age 59 and a half, tax free.

That's what they argued. So you have somebody who reads what Congress says, goes and tells their clients, serving their clients, says, "Look, if you've got something that's going to blow up in value, this is what you should do." And they grasped that. Now listen, quote, "What happened next deprived the U.S.

government of untold millions in tax revenue, perhaps billions." Thiel used his new Roth IRA to purchase shares of his startup. In 1999, single taxpayers were only allowed to contribute to a Roth if they made less than $110,000. Like many startups, PayPal offered its top executives low initial salaries and large stock grants.

Thiel's income that year was $73,263, the IRS records show. Now is there anything wrong with a guy making $73,000? I don't know what he was making before that. Of course, I don't have his tax records to know, but I'm not aware of him ever making much money. New Stanford Law graduate, making $73,000.

Is there anything wrong with a guy putting $2,000 into a Roth IRA? Nothing at all, right? Just following the rules. Congress created this tax incentive. After all, Congress creates this account because they want people to save for their golden years. Here's this guy who's a young, fresh college graduate, probably has a bunch of student loan debt or something, and he says, "I'm going to put some money aside for retirement." Nothing wrong.

Now what's the next paragraph? "Thiel also had an advantage over most Americans with IRAs, who typically used them to purchase publicly traded stocks, bonds, mutual funds, and certificates of deposit." Since Thiel used his Roth to buy shares of a private company, the value wasn't set on a public stock exchange.

What this shows is that typical people are broke because typical people take the typical advice to invest in publicly traded stocks, bonds, mutual funds, and certificates of deposit. You would be crazy to put a lot of those things into a Roth IRA, unless you just didn't have anything better to put in a Roth IRA, because a lot of those things were already tax efficient.

Now you could put your bonds in a Roth IRA, you could put your mutual funds in a Roth IRA, but a lot of times stocks and whatnot are tax efficient already. Their capital gains property. What you look for whenever you have something is to say, "How can I maximize this?" That's what you should look for.

You should look for and say, "Okay, here's a set of rules. How can I maximize these rules? How can I play these to my advantage?" The answer is you want to put in highly undervalued assets that could grow massively in value. Some real estate investors will do this. There are a lot of real estate investors who have a lot of money in their IRAs, but you don't just go out and put a standard house in it.

You invest in something highly speculative because you can't get much money into the account because of the contribution limits, and you want something that's going to really win to maximize your tax-free deferral, your tax-free gains. Now here's where we get into the idea of what ProPublica thinks Thiel may have done wrong.

Let me read what they say and then we'll talk about it. Since Thiel used his Roth to buy shares of a private company, the value wasn't set on a public stock exchange. Although the details of such purchases are not usually public, Thiel's financial assistant later disclosed them in a letter included in the Entrepreneur's Application for Residency in New Zealand.

"Mr. Thiel purchased his founder's shares in PayPal through his Roth IRA during PayPal's formation." While SEC filings describing that time don't mention Thiel's Roth, they show that he bought his first slice of the company in January 1999. Thiel paid $0.001 per share, yes, just a tenth of a penny, for 1.7 million shares.

At that price, he was able to buy a large stake for just $1,700. In 1999, $2,000 was the maximum amount you could put into a Roth in a year. Thiel's unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren't allowed to buy assets for less than their true value through an IRA.

The practice is sometimes known as "stuffing" because it gets around the strict limits imposed by Congress on how much money can be put in a Roth. PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel's founder's shares were among those the company sold to employees at "below fair value." Victor Fleischer, a tax law professor at the University of California, Irvine, who has written about the valuation of founders' shares, read the PayPal filings at ProPublica's request.

Buying startup shares at a discounted $0.001 price with a Roth, he asserts, would be indefensible. "That's a huge scandal," Fleischer said, adding, "How greedy can you get?" Warren Baker, a Seattle tax attorney who specializes in IRAs, said he would advise clients who are top executives working at a startup not to purchase founders' shares with a Roth to avoid accusations by the IRS that they got a special deal and undervalued the shares.

Baker was speaking generally, not about Thiel. "I would be concerned about the fact that you can't support the valuation number as being reasonable," he said. And it goes on and it talks about how they had bought more shares and there was other people buying shares, etc. Now the intimation, it's not an allegation, but the intimation here is that Thiel did something wrong by buying these shares in his Roth IRA at this discounted price.

And I don't know if he did or if he did not. All I have here is the article with their two expert people that they interviewed. What I do know is early stage companies, small companies, private companies are vanishingly difficult to value. Pretty much you make it up, but you try to make it up in some way that makes sense.

I have a company, one of my companies. This company is worthless, but I have one million shares in this company. The company has no assets. The business is not yet going. It's worthless. It's worth less than one-tenth of a dollar of a share. And so the argument goes back and you have to say PayPal was actually worth a lot more and everybody knew it.

Now without question, you could argue that successfully now because in hindsight, you could argue that successfully if you say, well, Thiel thought the company was worth a lot more than $0.001 per share. Thiel thought the company was worth a lot more. Without question, he did. That was why he was excited about it.

That was why he was working in it. But here's what's so wacky. The market may or may not have thought it was worth more. Other investors had the opportunity to invest and they passed. We don't actually know what Thiel thought about it. We don't actually know what it was worth.

It was worth as much as what someone was willing to pay and Thiel was willing to pay that price and the company thought it was worth it for them to sell that amount of shares to Thiel at that price because these people are committed to it. Could there be a legal opinion here?

I'm sure there could be and they could fight it out in court. So if Thiel is alleged to have done something wrong, the government could sue him. I can't remember what the rules would be at this point in terms of the statutes of limitations on the tax returns and everything like that.

I don't know how that would work out. But the proper place for that is in a court. In the court of public opinion, we don't have enough information to pass a judgment. I'm very open to the idea that Thiel engaged in some kind of stuffing strategy, that he got a sweetheart deal.

That's very possible. You and I would do exactly the same thing if we could. I'm also very possible that Thiel saw something that he thought was good. No court, no jury would ever find that he did anything wrong and it turns out that it just worked out. Probably with a lot of work for him and at the right time in the market.

There were probably a lot of other people who put shares of their small private companies into their Roth IRAs. Their companies went bust in 1999, 2000, 2001 and they're worth nothing. So it only works out if you're successful. So it's possible that he did something. But having done this stuff for a long time, there is a wide range of defensible numbers that you put on things like valuations.

There is no law that says you can't use the thing that is the most advantageous for you. You can't use, if the IRS gives you four different ways of valuation, you can work them through and then you can choose the one that's most advantageous for you. So it would be my guess that a court case would actually find that nothing wrong was done.

I don't know that, just guessing. Because there's no reason to do something that's actually wrong in this situation. There's no reason to do something that's actually illegal. You're just simply choosing the thing that you think is going to be best for you. Now I would defer to Mr. Fleischer, the tax law professor, and Mr.

Baker, the Seattle tax attorney. They certainly have good points to say. But I doubt that either of those men has Thiel's brain, in the sense that Thiel is somebody who is willing to take the risk. You have one guy who's a legal professor at a university. That means, I don't know anything about his career, I'm judging, I'm stereotyping, but generally he's not someone who would even understand the concept of risk, of entrepreneurial risk.

He's looking for a safe government job. And you get the other guy who's a tax lawyer. Again, we don't know anything about him, but an entrepreneur would look at it differently. If I were in Thiel's shoes, sitting at the table talking to a tax advisor, I would say to him, "Listen, I need to know what the law says." The advisor would say, "Well, here's what the law says.

You have to put them in at a fair market value." And then I would respond, and I would say, "Well, how do we know what a fair market value is?" "Well, here's what we understand, here's what we know, here's what we don't know." Okay. Now, once that's done, I'm going to look at it and say, "What are the risks?

What are the risks of my not doing it?" Meaning, what are the risks if I choose this valuation versus the other valuation? And in these scenarios, the risk is basically that the transaction is disallowed and that tax is imposed. Well, if I'm following the law, right, there's no risk of my committing tax fraud, for which there would be jail time.

I'm following the law. I'm choosing a valuation estimate that is favorable to me, that's most favorable to me. If I get sued about this, I have to defend it in tax court, and if I lose, what'll happen is I'll have to pay the tax. But if I don't choose this, and I don't put the money in the shares of Maratha, I have to pay the tax.

So there's just no reason for me not to take the risk as long as I would not be anywhere near the realm of fraud. That's the key. You can't be anywhere near the realm of fraud. You need to have records and data that says, "Here's what I think the company is worth.

Here's my argumentation for that. So here are the number of shares that I want to have." That's my understanding of it as a non-attorney. That's how we as human beings deal with risk. You're dealing with risk at all times, and you're looking at it and you're saying, "I see something more in it." In every single financial transaction, every voluntary transaction, both people will walk away feeling like they got the better end of the deal, or they'll return the product or be unhappy.

But in every happy transaction, which is the vast majority of them, both people feel like they walk away winning. If you go to work today and you get a paycheck on Friday, at the end of the week on Friday, you're going to walk away feeling like you got the better end of the deal versus your boss because you got a paycheck and your boss got 40 hours of your time.

On the other hand, your boss is going to go away feeling like he got the better end of the deal because he got 40 hours of your time and he only had to give you a paycheck. Every transaction works that way. In a scenario like Teal here and the company, Teal walked away from this transaction feeling like he got the better end of the deal.

And PayPal, the company, walked away feeling like they got the better end of the deal by selling him the shares that the valuation put there. There's really no other way to figure out a valuation other than what two independent people arrive at in the marketplace without coercion. We arrive at a deal and that deal is going to result in both of us walking away.

There's no more exact science than that. You'll have one person walk up to a $50 steak and say, "This steak is a deal. I'm taking it." You'll have another person that walks up and says, "I don't want it." The guy who's selling the $50 steak, the only way he figures out his price is based upon him going away feeling like he won.

I hope the point's clear. I feel like I'm not communicating it well enough. But in a free market scenario, the only way you can figure out a number on this is based upon the parties involved. And the only tool that a tax authority can impose to say the number is fair or not fair is here's our approved methods of valuation and then what does the market say?

So while I'm open to the idea that Thiel committed something wrong, I would say he certainly didn't commit fraud. And if he did take a liberal valuation, he did what everyone else does when they value a company. He did what everyone else does when they value a house for sale.

He did what everyone else. You look at the marketplace, you choose the number, and you say, "Here's how I got there. I can argue this in front of a judge. I'm ready to go." Now let's continue with the story and move faster. After 1999, Thiel would never again contribute money to his Roth tax record show.

He didn't need to. In just a year's time, the value of his Roth jumped from 1,660... Excuse me. Let me come back for a moment. I want you to follow the numbers. Thiel contributed $1,700 to buy the shares of PayPal. Then the company goes through a round of valuation and they start selling funds to other investors, etc.

That, in just a month's time, the company sold a slice of itself to investors for $500,000. That June and August, another $4.5 million poured in from the venture fund arm of telecom giant Nokia and other investors, those records show. The dot-com boom was in full swing. Going on. When it came time to...

I should read it for fairness. "We're definitely on to something big," Thiel told employees in late 1999, predicting that PayPal would become "the Microsoft of payments," according to The PayPal Wars, a book by a former employee recounting those heady early years. But when it came time for Pensco, the custodian of Thiel's Roth, to report the value of the account at the close of 1999, none of the investor enthusiasm was apparent.

Pensco told the IRS that Thiel's Roth was worth just $1,664 at the end of 1999, tax records show. In an interview, Anderson said Pensco relied on the companies whose shares were in a Roth to say what they were worth. He didn't know how PayPal came up with its market value, but he said Thiel's purchase of those shares was "very legitimate." From then on, nothing would stop Thiel's Roth.

In a Silicon Valley equivalent of Tolkien alchemy, his Roth would transform those PayPal shares into a tax-free fortune, one that would be safer than all the gems, gold, and silver in the Dragon Smogs Mountain. Once again, we come to a situation, "All right, well how did the custodian do something wrong?" In this case, I would say, "No, the custodian didn't do anything wrong." This is, as I understand, standard practice.

When you have a private company like this, even a private company that is engaging in early-stage financing, the valuation is completely made up out of thin air. Every single one of those early investors thought the company was a multi-billion dollar company. That was why they were investing. But on paper, their valuations are not multi-billions.

That's why they're investing early. They're trying to get in early. There's no public market for the shares. There's no ability for you to see what the market is trading those things for. There's just no way to know. For every argument in favor of a certain valuation, there's an argument against.

Imagine it like this. I'm going to ask you a question. What do you believe is the proper value of Dogecoin today? What do you personally believe is the proper value that should be placed on Dogecoin? The vast majority of people would say nothing. It's worthless. That's why the vast majority of people don't own the coin.

It's worthless. But there are a whole lot of people that say it's worth a lot. And then there are many, many more people that say, "I'm not sure. It's worth something." Now, Dogecoin is much easier for us to value than PayPal shares would have been in those days because with Dogecoin, we have a public market.

With PayPal, and again, maybe I'm wrong on something because I didn't go through and read 18 books on PayPal like I would love to do before expressing my opinion publicly, but 80% chance I'm right. Dogecoin is easier to value honestly than PayPal would have been in those days because you have an entirely made up artificial thing, just like a cryptocurrency, totally made up thing and you have an early stage of the world where the world is changing and nobody knows what's going to happen.

Plus, unlike Dogecoin, with PayPal, you have to input all kinds of risk of user error and management error and people just messing everything up. Dogecoin, you don't have that. You just have a straight up commodity crypto that people can play around with and take bets on. With PayPal, you don't have that.

You have a company that people can mess up and drive into bankruptcy. So it's far riskier. Now with 20 years of hindsight, it will look like the answer was guaranteed. But if you think that, just tell me where you think Dogecoin is going to be 20 years from now.

Then we'll go back in 20 years and listen to whether you were right or wrong, what the utility and the value of a Dogecoin is and measured in US dollars. All of this is unknown. By the way, we would also have to go back and do inflation calculations and all those numbers in the early PayPal calculations.

Now here's what's remarkable. This is my favorite part of the story, of how Thiel used his Roth IRA to go from a fairly ordinary Roth IRA to an extraordinary Roth IRA. First, after 1999, Thiel would never again contribute money to his Roth tax record show. Why not by the way?

Well, because he would have made too much money and he wouldn't have been able to. If Thiel could have contributed money to his Roth, he would have. But unfortunately, after that point in time, his company started to be successful and thus his income would have gone over the contribution limits and he would not be allowed to legally contribute money.

Until later, they changed the rules allowing for the backdoor Roth, but by then he would have had so much money in his Roth that it really didn't matter and an extra $5,000 was immaterial. After 1999, Thiel would never again contribute money to his Roth tax record show. He didn't need to.

In just a year's time, the value of his Roth jumped from $1,664 to $3.8 million, a 227,490% increase. Joshua's commentary, amazing, absolutely staggering. I want to point your attention to the fact that being involved in your own business, especially a business that is scalable and has massive potential, is probably your highest opportunity for wealth, period.

The vast majority of people won't be able to do it, but for the few who can, that's where your biggest wealth is going to come from because the people who become wealthy are those who earn high incomes or who start businesses. And if you're thoughtful and intelligent about the kind of business that you start and you choose something that at least has the potential for scalability, you can sometimes have dramatic results.

He didn't need to. In just a year's time, the value of his Roth jumped from $1,664 to $3.8 million. I don't know how that's valued, a 227,000% increase. Then in 2002, eBay purchased PayPal. That same year, Thiel sold the shares still inside his Roth, his financial assistant later told New Zealand officials.

The tax-free proceeds poured into his account. By the end of 2002, Thiel's Roth was worth $28.5 million. Tax records show. If he had held his shares outside of the Roth in a normal investment account, Thiel would have owed the IRS 20% of his gains and owed another 9% to California tax authorities.

Because the shares were in a Roth, he had no tax bill when he sold them, saving him millions. Suddenly, Thiel had an advantage few investors could claim, his own personal investment bank that wasn't subject to taxation. He could now use the cash inside the Roth to buy and sell nearly any investment he wanted.

Thiel used the millions in proceeds from his PayPal windfall to invest in other Silicon Valley startups, as well as his own hedge fund, according to his financial assistant's memo. Once again, Thiel's Roth scooped up startup shares at bargain basement prices. They go on, they talk about Palantir, his investment in Palantir.

In 2004, Thiel met Mark Zuckerberg, a Harvard undergraduate. Thiel invested $500,000, Facebook's first large outside infusion of cash. Those Facebook shares ended up, where else, in Thiel's Roth IRA. And he goes on and continues to grow. Okay, so they talk more about the details. So at this point in time, we see that it's just growing and from there, he's got so much value in there.

Now they do cover a section, which I'm going to skip for now. They cover a section on the mega backdoor Roth, etc. Talk about the Romney IRA and go on. You should read it. But we'll close this out with the last couple of paragraphs. Having a modest 6% annual return and no withdrawals, his tax-free golden egg could be worth about $263 billion in 2087, when Thiel plans to celebrate his 120th birthday.

That's larger than the current gross domestic product of New Zealand, his adopted homeland. There is good news and bad news, Thiel told the Washington Post when asked about living more than a century. The bad news is, if you don't believe in the good news, you're not saving enough for retirement and likely to spend much of your old age in poverty.

The financial planning, Thiel said, takes on a very different character. Now I love this because it talks about Thiel's stuff of life extension, which I think is really fun and interesting as well. First of all, I hope that Thiel doesn't stop and start taking garbage 6% annual returns. I hope that he continues to use his business acumen, his investment prowess, and I hope that his account is worth a lot bigger than $263 billion.

I hope he does. However, it's going to create problems for us, you and me, who may or may not yet have $263 billion. Because it's hard to imagine a government like the United States sticking with its rules when somebody has been this successful. And they will change the rules.

You always think about the Rinaldo rule in Italy, where they changed the entire tax code so that Rinaldo would come and play soccer there and they could have a maximum tax of 100,000 euros. It's hard. I mean, a country will change everything if there's someone that's high profile enough.

And so there's no question this article is going to be influential around the world and influential in the US-American political and financial conversations. So here are the points that I would like you to make sure that you notice. Number one, notice that there's nothing that Thiel did that you and I couldn't choose to do.

You and I could choose to work in high-risk areas for our career. You and I could choose to work in the market where the change is exciting. If you go back to 1999, what you see at that time was that tech people in those days, they knew there was something new and fresh happening.

And there was opportunity all around because there was a fundamental transformation. I see the same thing happening right now in the financial space with cryptocurrencies, with DeFi, etc. There's innovation happening. There's change. People smell the fact that we could change everything. This entire system that has been around for centuries, we could change everything.

And if I were looking for opportunity, I'd look for where are things changing because where things are changing, there's opportunity. There's opportunity to go and sell shovels to gold miners. When you see a bunch of people going somewhere, pay clue into that and pay attention. Thiel did that, right?

In California at the right time, looking for opportunities. There are opportunities for people who solve big problems. Thiel solved a big problem. He tackled a big problem, the transfer of money. He had big dreams. The fact that he was approaching those dreams with libertarian ideals doesn't mean that his dreams were any different.

It just means that he wanted to solve a big problem. And he solved a big problem. To this day, you and I use PayPal, right? We use PayPal. Even though there's lots of competition, we still use PayPal. And PayPal transformed the marketplace in a powerful way. So he was where the action was and he was willing to take the risk.

Now what is it that equipped him to take the risk? I don't know. I haven't read Thiel's book actually. But I would say one of the things that equipped Thiel to take the risk was that he was able to do it. And so maybe he came from a very wealthy family.

Maybe his parents paid for all of his college bills. Maybe he had everything that he needed. I don't know. I actually don't know. Maybe he came from nothing. Maybe he just kept his expenses low. All that doesn't matter. My answer is you've got to be prepared to take the risk.

So how do you do it? Well, you become skilled and say, "I'm going for opportunity. So can I be good at keeping my expenses low? Can I be good at going for where I can really build something big? Can I make sure that I set myself up in such a way that I can survive to go after something?" If you need $1,700 to pay a car payment so you don't get your car repossessed, that may be the $1,700 that you could have put into your Roth IRA to buy shares of the company that you're excited about.

So keep your expenses low. Keep your flexibility high so you can go where the opportunity is. Now along the way, take good advice. Take good counsel. Think and talk to people and take the advice of experts because if you talk to the experts, the experts can help you to figure out how to do things smartly, to talk about how to structure things.

There are a lot of people in this listening audience who have started a company or been involved in a company and never went and sat down with a tax expert, never went and sat down with an IRA person and said, "Could I put this in my IRA?" Your first question should be, "Could I put my company in my IRA?

After all, I don't want to leave the United States and move to Bermuda or to Dubai just so I can have zero tax. Could I put my company in my IRA?" The answer is maybe yes, maybe no. But you should ask the questions and be looking for those things as Thiel did.

So those are things that you can do. Be involved in the inside. Always try to find the community people who are involved in it. In a couple of weeks, I'll be in Malta, ideally. I'll be in Portugal. I'll be in Malta in a couple of weeks. I'm going there and looking into what's happening on the ground.

I want to know what's happening with the cryptocurrency space. Now, it's less promised, seems less promising now than it did a few years ago, but the island of Malta in the Mediterranean was trying to position itself as the cryptocurrency island. You should pay attention to things like that and say, "Where am I going?" Silicon Valley might work well for a lot of people, but I don't know that Silicon Valley is the place right now.

But I hopefully will be in Dubai later this year. I think Dubai has a lot going for it. If I were in the finance space, I'm much more interested in spending time in Dubai than I am in New York City at this point, although there's still plenty of opportunity in New York City.

So look for where you think opportunity is and put yourself in the way of it and then just be smart about what you're doing because you can model what Teal did. You may not wind up with $5 billion in your Roth IRA. You may not. Which by the way, this 263 thing bothers me because like let me tell you why it bothers me.

I forget. I interrupt myself just to do this. This bothers me so much. It's the same thing like these worthless – they have these worthless – these completely and utterly worthless things about, "Well, if every person in Houston, Texas, all 2.3 million people put $2,000 in a bank, it still wouldn't be worth $5 billion." Okay.

What does that matter? Our human brain doesn't capture big numbers. So here it says, "Assuming a modest 6% annual return and no withdrawals, his tax-free golden egg could be worth about $263 billion in 2087 when Teal plans to celebrate his 120th birthday." All right. So I have a new baby.

So let's say that I put in – I pay my baby to model for my business and I put in $2,000 into his Roth IRA. By the way, I'm not saying new baby. My baby is two years old now. But I put $2,000 into his Roth IRA and let's assume that because of life extension, Teal thinks he's going to live to 120, but I think that by then we're going to live to 180.

So if we start with 180 years and we just earned – I think 6% is a little bit too high but maybe he can only earn 5% on his investments. Then in 180 years, then my son could have $13 million in 180 years. By the way, it actually kind of disproves my point because it shows how spectacular it is.

But you know what? I'm going to start my business and so he's going to start with – this year he's going to have a million dollars. Give me better math. He's going to put a million dollars in his account today and then in 180 years he'll have 6.5 – what is this, trillions?

I can't read my numbers. So the point is that – what is $263 billion? It just doesn't know. I'm not mad at them. But the point is that these numbers – let's extrapolate out the national debt. Let's extrapolate out the value of the dollar. We don't know. We're all guessing on the future.

We don't have any idea on any of these things. That wasn't quite the spectacular show ending that I anticipated. I just wanted to say to you that it's a remarkable article but you can do it too. You can do this too. You can use the exact same valuation rules that Thiel used.

You can go ahead and if you're wealthy, you can take a discount on a family – you can create a family business to move the shares of your business into. You can discount them for being privately controlled and for having a non-liquid market. You can then put those shares into an irrevocable trust held in a tax-free jurisdiction and those shares can grow over time completely tax-free.

You can do the same thing. You can take the same discounts, etc. You can use the world's financial systems to you. So use it. I don't imagine there's anybody here who's going to get mad at Thiel for doing it. My point is you need to do the same things that Thiel did.

Why did Thiel become a New Zealand resident and later citizen? Because he saw the writing on the wall and he said, "I need to have some options." A guy like Thiel could always show up in New Zealand on an airplane but by having a citizenship in New Zealand, he puts himself in the position where he could renounce his US citizenship if he needed to or if he wanted to.

Now there's a good chance that he won't ever have to because he's been smart about putting his money in his Roth IRA. By the way, if he renounced his US citizenship, his Roth IRA would still be his legally. But think about how this works. Why did he do citizenship planning?

Well, because if he ever needed to renounce his US citizenship, he controls the money in the accounts. It's all self-directed. So he controls the account. If the US government changed the tax rules on him and all of a sudden tried to take $2 billion of his $5 billion, he would renounce his citizenship and he would say, "I'm not giving you a dime." And what could the US government do?

Well, they could come after him but he would put in place, especially now with this, he would put in place publicity. He's followed every single rule that they put in place and they're the ones that change things. Now could they hunt him down like they hunted down John McAfee who died this last week?

Another story that I haven't covered yet. They could hunt him down. Right? But the point is that with a New Zealand citizenship, he has protection. And in this case, Thiel has not broken any laws whereas McAfee clearly broke the law. According to his own testimony, he broke the law.

Now the law, should it be changed? Doesn't matter. Thiel hasn't broken the law. Thiel followed every single rule that the US government put in place. And so he has citizenship insurance by being a New Zealand citizen. If he needed to leave, he controls the full $5 billion in assets.

It's not situated in the United States or at least not most of it's not. It's situated, his firm is controlling, so he has 92 sub-accounts now with his Roth IRA. They control the assets all around the world. He can retitle them if he needs to. New Zealand doesn't have capital gains taxes in and of itself, so he won't have a tax problem in New Zealand.

He solved his problem. Right? And you can do the same thing. That's my point. He solved his problems. You can do the same thing too. He followed the rules. You can follow the rules and yet you can have above average results. That's it for today's show. Thank you so much for listening.

I am still traveling this week. Still picking some things. Been family vacation, family reunion and whatnot with my family in the United States. And so I haven't had some new stuff to launch to you yet. Hopefully within the next few weeks I will be situated. We'll be in Europe this summer and I'll be able to share some more things with you.

I also apologize I haven't been able to schedule as many meetups as I want to do. I just haven't been able to make it work. But as soon as I can schedule more meetups and more events with you, I will do it. Just reach the end of my capacity.

Talk with you very soon.