Mitt Romney has an IRA reportedly worth upwards of $100 million. Which is amazing, especially considering the contribution limit is $6000 per year and was lower in the past. The Romney campaign isn’t saying how he pulled it off, but here’s some educated guesswork:
TPM— In other words Romney’s IRA may hold stock in Romney’s offshore funds, those funds could have levered up and yielded huge returns to the IRA. That would allow Romney not just to circumvent the annual contribution limits, but to avoid a 35 percent tax that would have kicked in if the IRA had taken on the debt-financed investments directly.
On a campaign conference call in January, Romney’s trustee promised to investigate whether Romney’s IRA included investments that allowed him to avoid the UBIT. Neither he nor the campaign ever provided an answer.
Even with that nifty little dodge going for him, it’s hard to see how someone’s shares in an IRA built out of non qualified investments could appreciate that much. Unless someone had extraordinary luck in picking shares that would skyrocket, in offshore accounts, while working as a corporate raider privy to more inside information than Bud Fox. Which doesn’t sound too far from what a real-life Gordon Gecko acolyte named Michael Milken pulled off, before he was indicted on 98 counts of insider trading and sentenced to ten years in the pokey.
What does this mean in layhuman’s terms? Steve A. or anyone, help me out here.
I know what leverage is. It is debt and what took down Lehman Brothers, Merril Lynch, Washington Mutual, Bear Sterns and most of Wall Street in 2007. Leverage can work both ways.
I’d very much like to know how Romney ended up with a $100 million IRA. My own has hardly returned anything in years because interest rates are near zero and the stock market is roughly where it was in 2000. I need a decent IRA a lot more than Romney does.
Either Romney is a financial wizard or an IRA tax loophole wizard.
It’s both legal and usual to convert sheltered retirement funds held in other accounts to an IRA. I don’t see anything to get frantic about.
Okay, time for me to play economist.
Here’s the basics: Individual Retirement Accounts (IRAs) have specific limits on how much an individual can contribute per year tax free. The tax is paid when the money is withdrawn from the IRA, presumably after retirement when income is less and so tax liability would be less.
Apparently Romney played the system. He could have done it legally, by generating a return of 30% per year to reach $100 million. No, don’t ask me which investments give that sort of return, I don’t know either although I wish I did.
Or, in many peoples’ minds a more likely scenario, Romney may have rigged the system. One possibility is that Romney put the money into funds he controlled then sold them at prices he set. The question is were the prices an honest, fair market value? Or did he lowball the prices? What’s very frustrating about all this is that we can only talk in abstractions and generalities because of the lack of disclosure.
You work for a corporation with a pension plan. You put money into the pension plan, and it is matched by the corporation.
You leave that corporation, with too few years of service for them to want to keep you listed in the plan. So they insist in paying the accrued value to you in cash.
You can then rollover that payment into an IRA, so as to continue to postpone taxes on it until you reach retirement age.
That’s how you get to have more in your IRA than can be accounted for by the IRA contribution limits.
Whether Romney “played games” with the laws, for his own benefit – that’s not for me to judge, but $100M does seem awefully large even for corporate pension plans.
Awfully large is right. I’m well versed with IRA and rollover and the whole bit. I managed qualified and non qualified portfolios of all kinds, licensed out the ying-yang, worked directly with mutual fund managers and pension fund folks for 20 years. But I have never seen an IRA worth a 100 mill, not one, ever, not even close and neither has anyone I;ve asked over the last few days that I used to work with (Remember, people will exaggerate if they can get away with it, seeing is beleiving). I’ve seen some big rollover from companies like Dell or Intel where the benef chose a lot of stock and did really, really well. But the biggest anyone in my office and circle of friends ever saw was three million (That was for an early Dell exec who chose a huge amount of stock, hit the jackpot with it, and rolled over his 401).
It’s certainly possible, but its almost lottery level luck, so it’s kinda hard to accept at face value that Romney was the one in a million lucky guys, pure luck, who also happned to be swimming in inside info on leveraged buyouts during the same period this was accuring in an offhsore account[s]. If I had to guess, I think Romney could have a real problem here. If this were democrat like Hillary Clinton, they would definitley have a real problem. Remeber when Clinton made a 100k in commodities off a thousand bucks? That’s possible, it happens, maybe it was legal, but it looked terrible. It looked like they were journaling trades into various accounts after the fact. If I had to bet, I’d bet they were journaling trades whether Hill knew it or not.
I’ll give Romney the benefit of the doubt and assume he had people telling him this was technically legal. But if I were running for President, and I knew it could stand regulatory and legal scrutiny, I wouldn’t be blowing off requests for info and not returning calls about it. I’d be putting it front and center and that would have started years ago. The fact that the Romney campaign keeps avoiding this stuff and dodging requests for statements and data looks terrible.
Thanks people.
It is becoming slightly clearer. BTW, I’m not accusing Romney of doing anything illegal. The fact is, I have no idea what he did so how could I.
1. The 401(K) rollover makes sense. I know about those. Mine was murdered by George Bush like tens of millions of others. If I net out contributions, it has hardly moved since 2000, since the options are all stock funds or bond funds.
2. The financial engineering aspect is interesting. If I understand it.
Step 1. Romney puts money in his IRA.
Step 2. He sets up a fund outside the IRA called Kolob Investments, maybe a shell company.
Step 3. He buys stock or invests in Kolob Investments. Since he controls Kolob Investments, he is able to set prices. He sells to himself below cost and then raises the prices.
or
Step 3a. He buys cheap shares in Kolob Investments, a holding company. He then transfers real assets into Kolob Investments, gold, stocks, ownership in private companies bought by leveraged buyuouts, bonds, etc. Now Kolob Inc. is worth way more. Profit!!!
This is an easy way to transfer real assets into an IRA where they are tax sheltered. Whether it is legal or not, I don’t know.
I suspect Romney did it by financial engineering. And your average person couldn’t do it because they don’t have the knowledge and means to hire lawyers and incorporate in Bermuda or the Grand Caymans or wherever. And you have to have real assets worth real money to transfer into your shell company that gets bought by your IRA in the first place.
What would really make it fly is if those private custom made shares you own in your IRA were invested in companies where the stock skyrocketed. The rgeat thing about an IRA is the private mutual fund the shares are in can buy and sell hevaily without incurring taxable gains. Now that might all be on the up and up, but when it happens to someone deeply involved in high dollar leveraged buyouts and they presumably make triple digit returns year after year in an offshore retirement account, which they now refuse to talk about or release details about, well, you can see why that might raise eyebrows.
Why not. Bernie Madoff made 10% a year for years and years. Who says you can’t make 100% + returns year after year.
Hmmm, and he is now in prison for life.
My best guess is that Romney figured out some way to transfer real assets into his IRA. Maybe by way of a shell company he controlled that was owned by himself in his IRA.
I asked my financial planner. Who is named “Google”.
Here is an excerpt from a longer article by Shawn Russell at Dailykos.
It seems from a Google search that a whole lot of people are wondering about Romney’s IRA. A lot of us would like to do the same thing to ours, not that we have the assets, offshore accounts, and staff to actually do it.
Also, regarding rolling over a 401K, 401Ks were created in the very early 80s (to the best of my recollection), so the earliest years of Mitt’s working life he didn’t have that option available and wouldn’t have had all the compounding years of the length of his working life. Even though he is older than I am, he couldn’t have been contributing before I was.
Edward Kleinbard: “So, the other possibility[….] The money went to buy interests in Bain funds that he himself controlled and he sold them at prices that he set. And the question is, did he set those prices at an honest fair market value, or did he lowball the prices? […] Now, what’s very frustrating to me about all this, you know, is that we can only talk in abstractions and generalities because, again, of the lack of disclosure.”
+++++
‘Tis Himself: “One possibility is that Romney put the money into funds he controlled then sold them at prices he set. The question is were the prices an honest, fair market value? Or did he lowball the prices? What’s very frustrating about all this is that we can only talk in abstractions and generalities because of the lack of disclosure.”