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Romney’s retirement plan

By Jennie L. Phipps · Bankrate.com
Sunday, January 22, 2012
Posted: 6 am ET

Mitt Romney's retirement planning conundrum is a problem I wouldn't mind having.

Unlike most of us, Romney  has somewhere between $20.7 million and $101.6 million in his IRA, according to his federal financial disclosure report. That news has some people up in arms and others just plain jealous.

The Wall Street Journal speculated last week on how Romney managed to put that much money is his IRA. The majority of experts guessed that he had invested his 401(k)/IRA in company stock from Bain Capital, his employer from 1984 to 1999, and it appreciated -- raising his tax-advantaged investments to an enviable level, sure to make his retirement comfortable.

But even considering that Romney was a partner and big earner, it's hard to wrap your head around how he could have made so much money within a plan designed to help employees put aside a very limited percentage of income.

If you're not familiar with it, Bain Capital is a private equity firm that invests in promising businesses. One of Bain's founding partners told the Wall Street Journal that in the 1980s, the firm allowed employees to invest through their 401(k)s in deals in which the company was involved. If Romney was able to do that, it's conceivable that he invested pennies that returned thousands, even millions. And when he left the company, he probably rolled his 401(k) into an IRA, just like the rest of us.

Bain's first big investment was in Staples, the $15 billion office supply store. Bain's money allowed Staples to go from one store in 1986 to 1,700 in 2006. Staples had an initial public offering in 1991 at $12.67. Chances are that Romney -- since he was a Bain executive in on the ground floor of that deal -- had options to buy the stock that could easily have been as low as $1 per share -- maybe less. Between 1991 and 2006, the stock split three for two eight times. It also paid dividends annually or quarterly since 2004. And that's just one deal -- Bain undoubtedly did hundreds in the 1980s. This is sheer speculation, but if Romney was only in on a few deals that were as successful as the Staples deal, that would be enough to explain enormous wealth sitting in his retirement accounts.

Most of us aren't that lucky, and it's easy to be envious, but there's nothing illegal about working hard and being a good money manager.

Of course, that begs the question of whether this was a good strategy. Some WSJ experts concluded that it wasn't because it means that Romney will have to pay ordinary income taxes on money he takes out of the IRA -- and by law, he'll have to start taking a large amount out in five or six years when he turns 70 1/2.

I'm no tax whiz, so I'm going to leave this question up to Bankrate's tax expert and blogger Kay Bell. But even if that puts Romney in the 35 percent tax bracket, it's still a great problem to have.

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2 Comments
Homeless
January 23, 2012 at 11:56 am

That figure is just silly, speculating anywhere between 20 and 100 million?

80 million is QUITE A difference...people being up in arms without knowing the full truth is silly.

Don't get me wrong, Romney is not a favorite of mine (liberal in conservative clothing if you ask me) so I'm not jumping in bc I'm a fan. The story is just plain ridiculous. The man and his businesses surely paid MILLIONS in tax compliance dollars, so everything he has done, I'm sure is in line with the tax code that our government has created.

The tax code is where the problem lies...again the people need to go to Washington with their complaints. The current tax code is why most of the "rich" don't pay what people consider their "fair share". Because the law allows them to be paid and invest in ways that avoid taxation. that is not THEIR fault, if you had the ability to legally avoid paying would you not take advantage?

This is why the tax code and every desire to raise taxes doesn't hurt the ultra welathy...it hurts the middle class and ultimately the poor when there are not enough jobs to be had. Take your whining to the capital people! Tell them to simplify the tax code.

Fair Tax would be great in this case. The more money you make, the more you usually spend...Fair Tax is the way to get those spending the big bucks to pay a higher share. Not to mention the people that are all here illegally that pay no taxes...they would still have to pay taxes on the things they buy and not be entitled to a prebate because they are not here legally. And the drug dealers and prostitutes and any others that make their money through illegal means, they will all start contributing!