Can You Amass $264 Million in an IRA? Warren Buffett’s Lieutenant Did.

If you’re like many people, you might know that it’s good to save for retirement with tax-advantaged accounts such as IRAs. But you might not appreciate just how much such an account can help you.

Would you believe that it’s possible to amass more than $250 million in an IRA? Well, it’s true — that’s what one of Warren Buffett’s two investing lieutenants did, in his own IRA. Here’s a look at how he did it, and what you might be able to achieve with an IRA.

IRA basics

First, understand that there are two main kinds of IRAs: traditional and Roth. You can contribute up to a total of $7,000 to IRAs (traditional and/or Roth) in 2024, plus an additional $1,000 if you’re 50 or older.

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A traditional account receives your contributions on a pre-tax basis, shrinking your taxable income and therefore your tax bill for the year of the contribution. So if your taxable income is $70,000 and you contribute $7,000 to a traditional IRA, your taxable income drops to $63,000 for the year of your contribution, saving you money.

With Roth accounts, you contribute with post-tax money, so your taxable income and tax bill will be unchanged. But…if you play by the rules, all your withdrawals in retirement can be tax-free, which can be a big deal.

Meet Ted Weschler

Now, meet Ted Weschler, who was hired by Buffett in 2011 to be one of two investing lieutenants for Berkshire Hathaway . He and Todd Combs were given a significant chunk of Berkshire’s assets to manage and invest and have been given more responsibility over time. It’s expected that in the post-Buffett period, the two will oversee investing for Berkshire, while others will other parts of the business.

Weschler made news when it came out that in less than 30 years, he had grown his IRA from a value of $70,000 to $264 million. Here are some things to know about this:

• Weschler opened the IRA in 1984, when he was earning $22,000 per year. He began contributing the maximum allowed — which was $2,000 for the year back then. He qualified for generous matching funds from his employer and the funds in which he invested did well, so when he left that job in 1989, the account was worth $70,385.
• He moved that money to a traditional IRA, where he had more control over how to invest the money. He invested only in securities that were publicly traded — meaning that any of us could have invested in them, too.
• In 2012, he converted that traditional IRA to a Roth IRA — as anyone could have done at the time. Doing so meant the value of the account — then around $131 million — would be counted as taxable income for the year, increasing his tax bill by a whopping $28 million. But from then on, the money in the Roth account could grow, and would be available tax free in the future.

Weschler has said this about how he invested:

The investing success of this account has been a function of careful stock selection, exceptional luck and a multi-decade time period. To have a sum of this magnitude built up in my Roth IRA is certainly beyond anything that I ever expected but it was implemented in a way that was available to all taxpayers with an appropriately long investment runway, i.e., the result is exceptional but it is not the product of exclusionary tax strategies.

What can you do with an IRA?

So — what can you do with an IRA? Well, let’s assume that you won’t amass $264 million. But what if you amassed only 1% of what Ted Weschler did? That would be a solid $2.6 million — enough to make many people comfortable in retirement.

The table below shows how much you might amass over time if you save different sums over various periods — with your money growing at an average annual rate of 8%. (The overall stock market has averaged close to 10% over long periods, not including inflation.)

Source: Calculations by author.

If you only contribute to IRAs, your results will be similar to those in the middle column. If you save and invest additional funds, you can amass more, of course — as the last column suggests.

Investing effectively

Since you, like me, are probably not as smart as Ted Weschler, or at least not as savvy an investor, it’s not unreasonable to just stick with simple, low-fee index funds, such as ones that track the S&P 500. The iShares Core S&P 500 ETF (IVV) or the SPDR S&P 500 ETF (SPY) are solid choices, among others.

While 401(k) accounts typically limit your investment choices to a handful of funds, with traditional or Roth IRAs, you’ll have much more freedom and can invest, for example, in almost any publicly traded stocks. So if you want to aim for higher than average returns, you might add some growth stocks tied to companies that are growing at a faster-than-average rate — to your mix. Not all will perform well, though, so spread your dollars across a bunch of them. Our Foolish investing philosophy suggests buying into around 25 or more companies and aiming to hang on to your shares for at least five years.

Consider dividend-paying stocks, too, because healthy and growing dividend payers will tend to keep delivering regular infusions of cash into your account no matter what the economy is doing — and they tend to increase their payouts over time, too — often outpacing inflation.

So while you might not get to that $264 million sum that stunned even Weschler himself, you can still build a much more comfortable future for yourself by making good use of retirement accounts. Start thinking about your retirement plan now.