IRA Financial Group Study Shows Mitt Romney's Wealth Would Be Significantly Higher If He Had Elected To Use a Self-Directed Roth IRA To Make His IRA Investments

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If Mitt Romney would have been able to use IRA Financial Group’s self-directed Roth IRA to make his IRA investments – he would be significantly richer than he is today

Mitt Romney and self directed IRA

Unfortunately for Mr. Romney he was not able to use a Roth IRA to make these investments because of his income tax bracket, but if these investments were made after 2010, he would have certainly been better of with a self-directed Roth IRA

IRA Financial Group, the leading facilitator of self-directed IRA LLC solutions has helped thousands of clients use their retirement funds to make private investments tax-free placing them in a far better position than Mitt Romney and his IRA investments. Mr. Romney has between $20.7 million and $101.6 million in it, a big chunk of his fortune. However, Mr. Romney used a pre-tax IRA or SEP IRA to make his investments, which will eventually require him to pay ordinary income tax on a percentage of his IRA each year upon reaching the age of 701/2. With income tax rates expected to increase in the near future, using a pre-tax IRA to make such investments may have actually hurt Mr. Romney. Tax-law changes since Mr. Romney's Bain tenure mean that long-term capital gains in regular accounts now are taxed at 15%. But IRA gains are taxed at ordinary-income rates upon withdrawal, which for Mr. Romney, under current law, would be 35%. However, if Mr. Romney had been able to use a self directed Roth IRA to make such investments, he would be able to eliminate any tax due on the income and gains associated with his very successful IRA investments. “Unfortunately for Mr. Romney he was not able to use a Roth IRA to make these investments because of his income tax bracket, but if these investments were made after 2010, he would have certainly been better of with a self-directed Roth IRA, “ stated Adam Bergman, a tax attorney with the IRA Financial Group. “After 2010, the IRS began permitting any individual regardless of income level to convert their pre-tax IRA into an after tax-Roth IRA without penalty,” stated Mr. Bergman.

If Mr. Romney was able to convert his SEP pre-tax IRA into a Roth IRA, once he reached the age of 59/1/2, he would be in a position to take IRA distributions without paying any tax. This would have made Mr. Romney even richer than he is now since he would not have owe any tax due on the income generated from his successful Bain Capital IRA investments.

According to a March 28, 2012 article from the Wall Street Journal, the tax-deferral opportunity stemmed from the way Bain often chose to structure the shares of companies after taking them over. Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A, according to former employees, Bain internal documents and securities filings. Because Bain controlled the companies, it had flexibility in assigning values to the classes. Class L shares, akin to preferred stock, were safer and had a higher initial value. They had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%. Bain assigned a much lower value to Class A shares, which were riskier but potentially more profitable. If Bain sold or liquidated a company it had taken over for less than was owed to Class L shareholders, the Class A shares lost all of their value. But once Class L shareholders got their money, Class A shareholders received the bulk of additional gains, often as much as 90% of them, according to the documents and former employees. In successful deals, the A shares could skyrocket. Bain employees who achieved big payouts had skin in the game, with their investment money at risk. Still, the chance to co-invest with Bain was considered so attractive, former employees say, that they sometimes borrowed from relatives or friends to do so.

If these transaction were done after 2010, Mr. Romney and other Bain employees would have been able to use a self-directed Roth IRA to make these investments tax-free without ever having to pay ordinary income on the income or gain realized from the sale.

In 1997, Congress, under the taxpayer Relief Act, introduced the Roth IRA to be like a traditional IRA, but with a few attractive modifications. The big advantage of a Roth IRA is that if one qualifies to make contributions, all distributions from the Roth IRA are tax free – even the investment returns – as long as the distributions meet certain requirements.

By using a self-directed Roth IRA, all income and gains associated with the Roth IRA investment grow tax-free and will not be subject to tax upon withdrawal or distribution. This is because unlike traditional IRAs, one is generally not subject to any tax upon taking Roth IRA distributions once one reaches the age of 591/2. One can only imagine what people would be saying if Mr. Romney was able to use a self-directed Roth IRA to make these investments. The good news is that today the self-directed Roth IRA investment structure is available to anyone interested in generating tax-free-returns from real estate, private investments, and other investments.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP and Dewey & LeBoeuf LLP.

To learn more about the IRA Financial Group please visit our website at or call 800-472-0646.

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Jaclyn Baily
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