With the recent news that a billionaire managed to get several billion dollars in a Roth IRA by funding it from pre-IPO shares of his company, I'm curious about how this works. Ignore for the moment the ethics of it, and assume for the moment that there will be no change in the tax treatment of these kinds of transactions.

Are Roth IRAs permitted to own stocks that are not publicly traded, in particular pre-IPO startup shares? If so, how are the stocks valued such as to justify their being under the contribution limits? Can stock options (ie, options of the kind that are often distributed to early employees) be added to an IRA, or only actual stock?

1 Answer 1


To be clear, only cash can be contributed to an IRA. What that IRA can invest in is up to the IRA custodian.

You can have a "self-directed" IRA that can invest in things like real estate, private stock, etc. But those assets cannot have a direct benefit to the IRA holder. You can't, for example, sell your house and re-buy it (at any price) within the IRA because you get a benefit from living in the house. You also can't buy rental property and collect the rents outside of the IRA - all profits must be kept inside the IRA, and any withdrawals would be subject to normal IRA distribution rules.

It's perfectly legal to buy pre-IPO stock within a Roth IRA, so long as the transaction is independent of the IRA holder (e.g. the stock wasn't bought from the holder). Assuming the stock was purchased at arms-length (meaning from a willing seller at that price), then there's nothing improper that I can see. In order for the holder to benefit, the stock would have to be sold and the proceeds withdrawn from the IRA (again subject to all IRA withdrawal regulations).

The stock in question is PayPal stock that was bought in 1999 (a year after its founding) that has grown from $1,700 in 1999 to over $5 Billion 22 years later (a 97% annualized growth rate).

  • I'm really focused here on how it mechanically works to buy pre-IPO stock with the IRA, and this covers that very well. Thanks!
    – Joe
    Jun 25, 2021 at 17:58
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    There are other restrictions as well. See here: kitces.com/blog/…
    – minou
    Jun 25, 2021 at 18:09
  • @gaefan Interesting - I wonder where someone like a company founder manages to buy stock in an IPO. I guess as long as they're not 50% owners (as most IPOs would have lots of investors, so the founders don't usually have 50% control) it's okay to buy directly from the corporation? Not too many people will have significant amounts of stock outside of the officers at that stage. But either way someone like me would be a tiny percent owner and have no issues there.
    – Joe
    Jun 25, 2021 at 18:48

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