Friday, July 6, 2012

Krugman on Romney's Massive, Off the Charts, IRA

This is fascinating. Mitt Romney's IRA is worth over $100 million. I'm not against loopholes. There should be more of them, and for all of us. But, it is usually the power players, who can get close to the power centers, that can get the major loopholes.

Leona Helmsley was correct when she said, "Only the little people pay taxes." Paul Krugman reports on Romney's IRA, where generally you are limited to contributing only $6,000 per year:
Sort of related to my point about how although offshoring gets all the attention, domestic outsourcing is far from innocuous: there’s a lot of well-justified buzz about Romney’s accounts in the Cayman Islands, Switzerland, etc… But as Brian Beutler points out, an arguably much bigger issue is Romney’s domestic individual retirement account. IRAs are designed as a middle-class vehicle, with annual contributions limited to $6000; yet somehow the Romneys have an IRA worth more than $100 million. No, that’s not a misprint.

How did that happen? Presumably there was heavy exploitation of some kind of loophole.
UPDATE: In thinking this over a bit more, Romney probably rolled some asset(s) into the IRA from some other pension account. An IRA rollover occurs when you change jobs or retire and as a result you are entitled to distribute or “rollover” your previous employer's retirement plan (such as a 401k, 403b, 457 plan etc) to an IRA.

But this may only raise the question of how the money got into the other retirement plans in the first place.

Power players know how to game the system.


  1. This is not difficult to explain. My understanding of the IRA has always been that you can only write off up to $xxxx, but you can deposit as much as you want post-taxes. The investments then are tax-free until you withdraw. Since the penalties for early withdrawal are about 10%, that can be a pretty good deal if you've got the money and your investments pay off.

    1. This is incorrect. Try "deposit(ing) as much as you want post-taxes." The firm at which you hold your IRA account will deny the additional contributions; or if they don't, you will run into a big problem with the IRS when you file your taxes, to the tune of how much you have exceeded your maximum contribution limit.

      Traditional/Rollover IRA contribution limits are hard and fast; 5000 is the max, plus 1000 extra if you are over 50 (called a catch-up contribution; so max contribution if one is over 50 is 6000). The tax-deductibility of the Trad/Rollover IRA contributions is the only matter at question, and is dependent upon one's MAGI and/or whether one participates in a separate employer-sponsored qualified retirement plan (such as a 401k). If you exceed a certain MAGI, and participate in a company sponsored qualified retirement plan, you may still make trad/rollover IRA contributions up to the maxes outlined above; but your contributions in such a case would NOT be tax-deductible (in other words, they are after-tax contributions, which must be tracked separately by filing a form with your tax return so that these contributions aren't 'double-taxed' when making withdrawals). However, the benefit of making after-tax contributions is that at least any growth on those contributions- in the form of the investments you purchase in the IRA with them- would be tax deferred. (on a related note, Roth IRAs are a different matter. contributions to a roth are, by the definition and nature of the account, always after-tax. if you exceed a certain MAGI, you are ineligible to make a roth ira contribution, period).

      In any case, good effort, but very wrong answer. As I noted below (comment at 6:58 p.m.) Romney's impressive IRA account balance must primarily have been achieved by rolling over existing assets from other business-related qualified retirement accounts, such as 401k accounts and- as other commenters after me correctly noted- SEP IRAs and pensions, as well; there are also profit-sharing keoghs, and others.

      Bottom line, nothing has been exposed here but the ignorance of the investment options available to all (if not the actual salaries and/or benefits to accumulate an equivalent IRA balance).

      No loopholes.

      Krugman is a freakin' moron; and shame on Wenzel for not catching it before echoing the Krugman hyperbole... but at least Wenzel updated his front page to acknowledge it.

  2. Not much of a loophole.

    In all likelihood (read: absolutely dead certain) it's the result of rolling over assets from company retirement accounts, such as 401ks, which have much higher annual contribution limits along with company matches that- combined with successful investment selection- can easily accumulate to substantial (yes, multimillion-dollar) sums over decades, especially for executive types like Romney.

    No hocus-pocus here folks. Back to focusing on how Romney is a douchebag Obama carbon copy in republican clothing.

  3. In 2012, the Simplified Employee Pension, or SEP-IRA, which is used by small businesses or sole proprietors, has a contribution limit of fifty thousand dollars, or twenty-five percent of the employee’s salary, whichever is the smaller. It's hard to fathom building up a $100 million IRA even from that annual contribution amount. But one way to do it without using a loophole would be to roll over a large pension plan or two into your IRA.

    Krugman is a whiner.

  4. Please keep us updated, I too am very interested in how anyone could have a $100 mil. IRA. Is it traditional, Roth? There had to be a conversion loophole us mortals have never heard of.

  5. "Presumably there was heavy exploitation of some kind of loophole."

    This just shows the massive ignorance that is a large part of the reason many rich people are rich, and those that berate them, aren't.

    It's not a damn "loophole". It's how IRAs work. Yes you can only contribute up to $6k or so annually...but you can invest that money in almost anything you want. It's not some simple checking account earning 0.03% interest.

    The IRA is simply an investment shelter that protects the earnings from taxes. You could contribute your $6,000, and then buy a bunch of shares in a big IPO with that money, then sell the shares the next day before the cool down and have an IRA now worth $60,000. You didn't sit there and contribute the maximum amount for 60 years. (Morons)

    And now of course, you have $60,000 to invest with. (And just in case these ignoramuses still don't understand, as the account grows, it's a lot easier to partake in investments with better and higher returns.)

    Obviously Romney knows lucrative ways to invest his money. This has nothing to do with "loopholes" on how to get money into an IRA. And the fact that these people assume that's the only way to have an IRA worth that much makes it more than obvious to me there's a reason they're not anywhere near upper class they so envy, and a reason they'll stay that way.

    1. How many of us had a chance to get in on the ground floor of the big return IPOs?

  6. Krugman is a complete idiot on tax law and yet the man still gets published when he rights such nonsense. The rollover provisions have been around since IRA's. If it makes him feel any better, one of my good friends that worked for the government all his life will be rolling over $2.4million from retirement plan he took part in during his career as a high level government worker. This is on top of his pension. I would rather ask why this is even possible. Same question is why can a guy that is in a full time job of POTUS, with a full pension, can still fund a SEP IRA while the rest of us in the private sector are limited to contributing to one plan in a tax year.

  7. For all of the talk here about morons and not knowing anything about tax law, no one has yet explained how one could get a $100 million IRA. If it is a rollover from another retirement instrument, that just transfers the question to that other instrument, all of which have annual contribution limits.

    The SEP-IRA annual contribution limit has been in the $40-50,000 range. Assume 30 years of contributions of $45,000 a year and a 10% annual return on the money invested. My back-of-the-envelope calculation says that this would result in just under 9 million dollars, less than 10% of what Romney has.

    So the question remains, how is this possible? Retirement accounts were created as an strategy for middle class retirement accounts, not as a method for the very wealthy to shelter huge amounts of tax-free income.

  8. If someone knows how to invest IRA funds in an IPO, please share.

  9. It's like you people can't use Google.