The dream of a secure retirement is out of reach for most Americans. Fifty-seven percent of workers do not have anything saved for retirement. Voters across party lines overwhelmingly agree that the nation faces a retirement security crisis. 

However, the richest among us look to be more financially secure than ever before. A new series from ProPublica shows how Peter Thiel, one of the wealthiest Americans, created a $5 billion tax-free piggy bank by skimping the rules on contributing to Roth Individual Retirement Accounts (IRAs). 

After access to pension plans started declining in the private sector but before the creation of the Roth IRA in 1997, financial institutions began offering traditional IRAs as a tax-advantaged retirement savings account. With a traditional IRA, workers could contribute and receive an immediate tax benefit. In exchange, they would pay taxes on their withdrawals and would also have to make regular withdrawals known as required minimum distributions (RMDs) as they age. 

A Roth IRA was designed to operate slightly differently. In these accounts (named after their founder, the late Sen. William Roth Jr.), workers don’t reap an immediate tax benefit for contributing. However, their contributions are allowed to grow tax-free as long as they do not start withdrawing funds until they are at least 59 and a half years old. They also do not have to make RMDs from their accounts. To prevent the wealthy and well-connected from stockpiling funds that could earn value tax-free, Congress set income limits on who could participate, as well as contribution limits for how much one could contribute in a given year ($6,000 in 2021). 

Rich Americans like Thiel, however, have been able to skirt the income and contribution limits by investing with their Roth IRA in a high number of shares in a startup that could dramatically increase in value someday. If the startup is a success, all of the gains in those shares are not taxable, and the owner of the Roth IRA can use them to make further investments that could also gain in value tax-free. Thiel made use of this by purchasing 1.7 million shares of the startup Paypal for fractions of a dollar in 1999, and he witnessed explosive growth in his Roth IRA over the next two decades by using the tax-free profits to continue making other investments. 

Congress, however, had introduced a provision when it created the Roth IRA to prevent this behavior from occurring. According to ProPublica, “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.” When Thiel had bought his shares of PayPal, at the time, it was a privately held company that was not set on a public stock exchange, making it a possible violation of Roth IRA regulations. 

Unfortunately, Thiel is not the only affluent American to collect these investment earnings tax-free through a Roth IRA. The ProPublica series also revealed that Warren Buffett, for example, had $20.2 million in his Roth IRA at the end of 2018, and hedge fund manager Robert Mercer has $31.5 million in his Roth IRA. 

Every American who works hard and plays by the rules should be able to retire with security and dignity. In an era of increasing income inequality, those who skimp the rules should not be allowed to dodge taxes for decades as a reward.