Less than 1.5 percent of IRAs have surpassed the $1 million mark because of very strict limits on the amount individuals can place in them annually. Yet federal government figures show 314 taxpayers have beaten the odds with IRAs whose values exceed $25 million each, totaling $81 billion collectively. That comes to $258 million each on average. How did they get there?
One way to do it is with self-directed IRAs that allow alternative investments beyond the publicly traded stocks and bonds that most financial institutions offer. Recent industry surveys revealed that there are one million retirement accounts that are self-directed in private companies, venture capital, private equity, hedge funds, and other so-called “alternative” investments.
Here are a few well-known companies that had individuals with self-directed IRAs invest in them before they were publicly traded: Facebook, Staples, Sealy, PayPal, Domino’s, and Yelp, just to name a few.
Billionaire tech investor and PayPal cofounder Peter Thiel bought shares of PayPal and Yelp through a self-directed Roth IRA when the companies’ shares were worth mere cents on the dollar, and he made an early investment in Facebook in the same manner.
Forbes notes the 1.7 million PayPal shares Thiel purchased presumably rose to $31.5 million when eBay bought the company for $19 a share. As long as Thiel holds the proceeds in his self-directed Roth IRA until 2027 — when he turns 59 ½ — it’s all tax-free.
During the 2012 presidential campaign, Mitt Romney disclosed his own IRA was worth somewhere between $20.5 million and $101.6 million, notes Bloomberg News. A self-directed Simplified Employee Pension (SEP) IRA allowed Romney the ability to choose his investments. This type of IRA has a higher annual contribution rate of up to 25% of an individual’s income or $53,000, whichever is less.
Normally when someone has an IRA, they set it up with an institutional investor firm like Schwab or Fidelity. They then can choose from the investments the firms offer. Often alternatives are usually limited to mutual funds. EOG has partnerships with companies that can assists investors to establish Self Directed IRA accounts enabling an investor to use their IRA as alternative approach to investmenting in EOG funds.
If you’re interested in learning more about and how to use self-directed IRAs to invest in EOG fund, please contact EOG at firstname.lastname@example.org or your EOG contact.
Definition of Accredited Investors
Lisa Skolnik is Senior Vice President of Content and Chief Content Officer at Intralink Global, a next generation marketing and content firm. Prior to joining ILG, Lisa was a reporter, nationally syndicated columnist, contributing editor and writer for consumer and trade publications and websites on a wide range of topics.
LinkedIn: Lisa Skolnik