Skip to main content

   Mitt Romney has somehow accumulated between $21 million and $102 million in his IRA.

     I don't know what's in your IRA or if you even have one, but I bet it's nowhere near $102 million.

    Even financial experts are puzzled about how Mitt could possibly have accumulated so much -- legally -- in his account, one more thing Mitt does not want to explain.

  In fact, Bloomberg calls the IRA:

...the most mysterious of the unexplained mysteries about Mitt Romney’s considerable wealth....

You might have an IRA. The government lets you put $5,000-$6,000 a year into it, although the limits in years past were only $2,000. You don't pay taxes on the income. Say you made $50,000 last year. You put $5,000 in your IRA, so when it comes time to do your taxes, you only pay taxes on $45,000 in income.

Once your money's in the IRA, it earns interest or if you own stock, the stock price can go up, and you don't pay taxes on the earnings, either. Not until you take the money out.

So, how did Mitt get so much money in his IRA? First, a man like him wasn't subject to the paltry $2,000-$6,000 limits the rest of us are. Mitt, at Bain, most likely had a SEP-IRA, funded by Bain, with limits of about $30,000 in contributions a year.

Bloomberg says that means he could have contributed a maximum of about $450,000 over his 15 years at Bain. (A little more if he actually stayed until 2002, but still a long way from $102 million. Don't know how a retroactive retirement would have played into this.)

If you are the Warren Buffett of IRA investors, it is conceivable that you could turn $450,000 into as much as $102 million -- an increase of 227 times -- but not very likely, especially as in the last decade or so, the stock market has been a roller coaster. Mere investing mortals would be lucky to still have $450,000 in the account.
I know my little IRA has taken some serious hits on the roller coaster ride that is the US stock market over the years.

But Mitt's has done really, really well.

What little tax information he has disclosed showed Mitt's IRA earned

between $1.5 million and $8.5 million from the beginning of 2010 until Aug. 12 of last year.
In nineteen and a half months? Wow.

His aide told the Wall Street Journal:

the tax treatment for his IRA "is the same for Gov. Romney as it is for every citizen of the U.S."

Right. Of course, we have to take Mitt's word on that. He won't show us the tax returns to prove that.

Investment experts told the Wall Street Journal they know of such large IRA accounts, but it's highly unusual and likely made possible only by Mitt contributing stock from Bain or companies Bain invested in, while the stock was of little value, to the IRA, to stay under contribution limits, and then the stock did very, very well while inside the tax-free IRA.

One expert said Mitt might have contributed some of his Bain earnings to a 401K retirement account (where people can deposit a percentage of their income each year) and then rolled it into an IRA.

This is not an exotic financial move. I actually did this. In my first job after college, I managed after 5 years to save all of $4,000. My employer matched part, and I think I contributed 6% of my vast income. (I didn't have any stock to put in my IRA that ended up growing by 200%. Poor me.)

And when I left that job, I rolled the $4,000 into an IRA. After about 20 years, with ups and downs of the market, I think I have a whole $55,000, and that's more than a lot of Americans have, I know. But it's not going to fund a lot of my retirement, and it's sure not $102 million.

Bloomberg just doesn't understand how Mitt got that much money in his IRA.

....let’s say Romney was prescient and put into this hypothetical IRA only the stock of the buyout companies that did well, returning to investors a whopping 10 times their money. (This is very rare but conceivable.) Even so, that would turn Romney’s $450,000 into $4.5 million. If the money was also compounded and reinvested over the years and became, say, $10 million, that would still leave another $11 million to $92 million of unexplained value sitting in the presumptive Republican Party presidential nominee’s IRA.
Ouch. That's a lot of money to explain away.

Again, from Bloomberg, Edward Kleinbard, a law professor at the University of Southern California, told Jennifer Granholm on her July 3rd show, his theory:

...that Romney contributed limited-partnership interests in Bain’s buyouts to his IRA. What was “quite troubling” to Kleinbard is that he suspected Romney may have contributed these interests to his IRA at a fraction of their market value -- “pennies on the dollar” -- and well below what he might have charged you or me. When the buyouts became successful, Kleinbard proposed, the pennies on the dollar were suddenly worth real dollars.
Let me translate. That guy's theory is that Mitt said to the IRS, "I'm putting these (lets say shares, for lack of a better word we all understand) of my share of this company Bain bought, and the shares are worth so little. So I'm putting a ton of shares in, and still under the $30,000 a year federal contribution limit. And then, once the shares are inside that tax shelter.... Wow, that company really took off! Look at that! It's worth millions! How about that?"

Still, the IRS understands that rich people do this, and they had a law to catch them.

Under current tax law, anybody investing an IRA in a private-equity fund, as Mr. Romney did, would likely incur a hefty special tax on "unrelated business income," also known as UBIT. This tax, assessed at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA, pension plan or endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership that uses debt to buy companies would trigger the tax, experts said. Wall Street Journal
Hmm. Okay. Maybe that's what Mitt's hiding. He didn't pay the 35% UBIT tax.

But wait, there's a way around the UBIT 35% tax, too. (Didn't you know there would be?)

One method used by tax lawyers is to have the IRA invest through an offshore affiliate of the private-equity firm, known as an offshore blocker corporation, which in turn invests the same money in the private-equity partnership. The tax is avoided because the IRA technically is investing in the offshore corporation, not in a private-equity partnership.

Tax experts say that might explain why Mr. Romney's IRA includes holdings in Bain entities based in offshore locations, including one Cayman Islands entity that Mr. Romney listed as having a value between $5 million and $25 million. Wall Street Journal

I can't even begin to understand what those two paragraphs mean. I didn't know to put my $4,000 into an off-shore blocker account. Too bad for me.

So, there it is.

Financial expert's theories about Mitt's Magical IRA.


Originally posted to on Wed Jul 18, 2012 at 02:30 PM PDT.

Also republished by The Bain Files.


I'm thinking of going into the bumper-sticker business. What would you like to see most on a bumper sticker?

14%7 votes
10%5 votes
6%3 votes
10%5 votes
27%13 votes
10%5 votes
19%9 votes

| 47 votes | Vote | Results

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site