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How to invest in a Roth IRA like — and unlike — PayPal co-founder Peter Thiel

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The average saver at retirement may not be able to emulate the growth of the individual pension account of PayPal co-founder Peter Thiel, but they could try out a few of his and other billionaires in investment strategies.

Thiel’s Roth IRA has grown from less than $ 2,000 in 1999 to five billion today, thanks in large part to private investment in security. Thiel used his Roth IRA to buy 1.7 million shares of PayPal shares
PYPL,
-0.44%

In 1999, three years before the company went public when it was worth $ 1,700, according to ProPublica report. When the price of these shares rose sharply after they went public, the balance sheet of his IRA also rose.

Retirement Tip of the Week: Investing in private securities and alternative investments may not be readily available to the everyday saver, but there are key lessons to be learned from the success of the technology giant’s Roth IRA.

See: Roth or not Roth

First: Know what to put in your Roth IRA. These accounts are financed in dollars after tax, unlike traditional IRAs, where contributions are pre-tax. Because of this tax nature, investing in more volatile growth-oriented options might make sense – if those investments grow significantly, the money they earn will not be taxed at the time of distribution.

“People should think about the possibilities of investing in alternative assets for retirement purposes,” said Eric Satz, CEO of Alto IRA, a website for investing retirement accounts in alternative assets.

Of course, investors should be careful – one of the goals may be a significant increase in investment during their career, but they also do not want to erode the money they have invested.

Typically, in order for people to trade non-public investments, they must be authorized investors. To qualify as an accredited investor, you must be an individual earning $ 200,000 per year (or $ 300,000 if joint) in the last two years, or that person must have a net worth of more than $ 1 million. These rules present obstacles for many Americans, but there are ways to circumvent them, such as investing in platforms that provide access to these private securities.

Do you have a question about your own problems with retirement? See the MarketWatch column “Help me retire”

Several platforms that allow people to invest in startups are Republic and SeedInvest. With these services, investors can use their IRAs to invest in private equity. There are also investment sites that allow retired savers to take an interest in valuable images, such as Picasso or Banksy. “By now, you would have to write a 5- or 6-digit check to diversify your interest in art, but because of the fractionalization, you can do it at the level of $ 500 or $ 5,000,” Satz said.

There are also a lot of opportunities to invest in real estate within the self-directed IRA, and now, cryptocurrencies also.

These investments could be valuable in the IRA, but they should be pursued with extreme caution. Investors may want to avoid making these investments a majority stake in their retirement accounts as well. Although these accounts are likely to have a longer time horizon than a savings account or other investment portfolio intended for a short-term goal, meaning they can handle volatility, they are intended to build a nest for the future, so they need to be handled carefully.

The manner in which an IRA should be assigned is very personal to each individual, and is based on age, health, retirement goals, and life expectancy at the investor’s age. However, these very volatile investments should be kept to a minimum.

“The icing is on the cake, not on the cake itself,” said Jason Flurry, a certified financial planner and president of Legacy Partners Financial Group. The good news is that if these investments work particularly well, the account balance can jump, but the opposite is also possible, when those investments lose money from the account.

See also: Talk to your parents about their retirement plans – sooner rather than later

There is another strategy of billionaires allegedly used In order to significantly increase its Roth accounts, ProPublic has found – Roth conversions. Roth IRAs have income restrictions, which limit the contribution of some high-earners. Because of this, workers may want to invest through a traditional IRA.

Investors may choose to finance part of their traditional IRAs with uncollectible dollars after tax, which can then be moved to the Roth IRA. There is a formula that breaks down which part of the bill is taxable and which is not. If an investor has a traditional pre-tax IRA, as many have, he can still convert those funds into a Roth IRA, but he will have to pay tax on it. Some high net worth individuals are currently thinking more about Roth strategies, in response to what investors expect increased tax rates President Biden.

People who want to convert money into Roth may want to use the extra money available, for example from bonuses or tax refunds, to pay taxes, so that the balance in their account does not decline as much from taxation in the short term. term, Flurry said.

Want more useful tips for traveling into retirement savings? Read MarketWatch’s “Retirement Hacks” column

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