Let's talk about the $5 billion elephant in the room. Most people look at Peter Thiel and see a billionaire who somehow "cheated" the retirement system. They see a guy who turned a tiny $2,000 contribution into a tax-free mountain of cash that would make Scrooge McDuck blush. It sounds like a magic trick. Or a crime.
Honestly, it's neither. It's just a masterclass in using the tax code exactly how it was written—even if the writers never imagined someone like Thiel would come along.
If you've been following the news, you know the broad strokes. In 1999, Thiel used his Peter Thiel Roth IRA to buy 1.7 million shares of a little startup called PayPal. He paid a fraction of a penny per share. Total cost? About $1,700. Fast forward a couple of decades, and that account is worth $5 billion.
But there’s a lot more to the story than just "buying low." The nuances of how he did it—and why the IRS basically gave him a thumbs up after auditing him—reveal a lot about how wealth actually works in the United States.
The $1,700 Seed That Grew a Forest
Most of us use our Roth IRAs to buy index funds or maybe some Apple stock. We put in our $7,000 a year (or $7,500 if you're looking at the 2026 limits), and we hope it doubles every seven to ten years.
Thiel didn't play that game.
He used a "Self-Directed IRA." This is a version of the Roth that lets you invest in "alternative assets." We're talking real estate, private companies, even crypto. In 1999, PayPal wasn't a household name; it was a risky bet. Thiel bought his shares at "par value"—basically the lowest price possible—before any outside venture capital came in.
Because the shares were valued at $0.001 each, he could fit 1.7 million of them into his account without hitting the $2,000 annual contribution limit.
Why the IRS couldn't stop him
People often ask: "Isn't that price-gouging yourself?"
Actually, the IRS looked into this. They audited Thiel in 2012. The thing is, at the moment he bought those shares, PayPal was technically worth almost nothing. It had no revenue. No customers. It was just an idea. If the company had failed, that $1,700 would have gone to zero.
👉 See also: Wells Fargo Predicts Double-Digit Returns for S\&P 500 by 2025: Why the Bulls are Winning
Because other PayPal employees were offered the same price, the IRS couldn't easily argue that Thiel was receiving a "special gift" or an illegal dividend. It was a fair market value for a company that didn't yet exist in the eyes of the public.
Reinvesting the Jackpot
By the time eBay bought PayPal in 2002, Thiel's $1,700 had turned into $28.5 million. Most people would have taken the win and retired. But Thiel understood the superpower of the Roth: tax-free compounding.
Inside a Roth IRA, you don't pay capital gains taxes. When he sold his PayPal shares, he didn't lose 20% or 30% to the government. He kept every single cent. He then took that $28.5 million and started swinging for the fences again.
He wasn't just lucky once. He used the cash in his Peter Thiel Roth IRA to fund other ventures, most notably:
- Facebook: He was the first big outside investor, putting $500,000 into the social network when it was just a Harvard experiment.
- Palantir: He co-founded the data analytics giant and kept much of his stake inside the Roth.
By 2019, ProPublica revealed that the account had ballooned to $5 billion. To put that in perspective, the average Roth IRA balance is around $40,000. Thiel’s account is 125,000 times larger than the average.
The "Rocket Roth" Strategy and Why it Matters Now
You might be thinking, "Great for Peter, but I don't co-found tech giants every Tuesday."
Fair point. But the "Rocket Roth" strategy—using tax-advantaged accounts for high-upside, high-risk assets—is something that professional investors are obsessed with right now. In 2026, the rules around these "mega-IRAs" are under constant scrutiny by Congress.
There have been multiple attempts to cap Roth accounts at $20 million. So far, they haven't stuck.
What most people get wrong about the risk
Everyone focuses on the $5 billion. Nobody talks about the "what if."
If you put a high-risk startup or a volatile crypto asset into your Roth and it goes to zero, you can't "deduct" that loss on your taxes. You just lose the contribution room forever. Thiel took a massive gamble. Had PayPal died in the cradle, he would have wasted a year of retirement savings room with no way to get it back.
Can You Do This? Sorta.
You probably can't get founder-level pricing on the next big AI unicorn. But the mechanics Thiel used are still available to the public.
- Self-Directed IRAs (SDIRAs): You need a specific custodian to hold these. You can't just do this through a standard Vanguard or Fidelity app.
- Private Placements: If you are an "accredited investor" (generally meaning you make $200k+ or have $1M in net worth), you can buy into private equity or startups through your IRA.
- Early-stage assets: Some people use SDIRAs to buy physical real estate or "fix-and-flips." The profits flow back into the Roth tax-free.
Actionable Insights for Your Retirement
Thiel's story isn't just about being a billionaire. It's a reminder that asset location matters as much as asset allocation.
If you have an investment that you think could 10x or 100x—whether it's a specific small-cap stock, a piece of land, or a crypto asset—the Roth IRA is the best place for it. Why? Because you want your "explosive" growth to be the money the government can't touch.
Steps to consider:
- Check your eligibility: For 2026, the income phase-out for Roth contributions starts at $153,000 for singles. If you're over that, look into the "Backdoor Roth" method.
- Audit your upside: Look at your portfolio. Are your high-growth assets in a taxable brokerage account? If so, you're signing a check to the IRS for a huge chunk of your future wins.
- Explore SDIRA custodians: If you want to move beyond stocks and bonds, research companies like Equity Trust or Millennium Trust. They handle the paperwork for the "weird" stuff Thiel buys.
The window for these massive accounts might not stay open forever. Lawmakers are still looking for ways to prevent "the next Peter Thiel." But for now, the rules that allowed a $1,700 bet to become a $5 billion fortune are still the law of the land. It's not about being a genius; it's about putting the right assets in the right bucket.