Mitt Romney’s IRA

Mitt Romney has a retirement account just like many other Americans. However, his account differs from most American’s IRAs because his is valued at up to $101 million. Romney does not have to pay annual taxes on that account’s investment gains now, but when he eventually has to withdraw that money, he will face higher than average tax rates. He would only be taxed up to 15% if he left money out of the IRA to be considered capital gains. But once he takes the money out of the IRA in 2017, it will be subject to the 35% tax rate on income. Romney’s approach does offer an immediate tax saving and deferral of taxes. 

Mr. Romney’s aide said that Romney “’accumulated his IRA holdings through annual contributions, rollovers of sums in other retirement plans, and successful investments.’” His IRA grew largely also because it holds investments in the private-equity firm he helped create – Bain Capital. Currently under the law, if individuals invest an IRA in a private-equity fund, the investment would be taxed up to 35% as unrelated business income. Mr. Romney invested his IRA in a private-equity fund, but his filings indicate that he may have used a strategy where the IRA invested through an offshore affiliate of the private-equity firm which then turns around and invests that money in the private-equity partnership. The IRA avoids the unrelated business income tax because it technically invested in the offshore corporation and not the private-equity partnership. When asked about Romney’s offshore investments, his aide said that those investments are doing exactly what they intended to do in keeping the investments tax-free. Tax experts also add that this type of planning happens frequently.

See Mark Maremont, Romney’s Unorthodox IRA, Wall Street Journal, Jan. 19, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention.