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.