Mitt Romney’s Success with IRAs

As the presidential race continues, many are confused about how Republican Nomination Mitt Romney was able to place so many assets (between $21 and $102 million) within his IRA, especially with the limitations on the amount that the owner can transfer to the IRA without a tax penalty. In truth, the reason that many people probably want to know about Romney’s strategy is so they can take advantage of the strategy too. 

Now, we have learned that Bains Capital used a particular type of IRA, a SEP-IRA, when Romney worked at Bains Capital. This type of IRA acts like a 401(k); however, the employer funds the IRA and the contribution limitations are higher than a 401(k). In the case of SEP-IRAs, the contribution limitation is set at $30,000. This would allow Bains Capital to invest about $450,000 in the SEP-IRA during Romney’s time at Bains Capital. This is where it gets tricky.

A note to the reader: this is pure speculation. Until Romney actually discloses the information to the American public, we can only guess on how he would obtain such a large IRA. Romney could have transferred assets that could have gained value over the course of time. While they are restrictions on the amount that the IRA owner can transfer to the account, there is no limitation on the amount that an IRA can earn after the owner transfers the assets. It is possible that Romney transferred an asset, such as the stock of corporation like the newly acquired Domino’s Pizza, to the IRA. It is also possible that he would have earned a great deal of money on stock that was located within the IRA after the corporation went public in 2004. Still, even if we were to accept this increase in the value of the assets, the stock would have had to increase exponentially. If the value of the stock increases 10 times, the value is only increased to $4.5 million. Additionally, “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” that is not explainable. 

The only thing that is certain is that we, the public, will not completely understand until Romney discloses this information to us. 

See William D. Cohan, What’s the Secret Behind Romney’s Magical IRA?, JournalStar, July 16, 2012.

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