The recent news that Mitt Romney has managed to accumulate millions of dollars in his self-directed IRA has caught the attention of the media, as well as various individuals preparing for their retirement. As a result of people knowing about these impressive results, many investors have expressed an interest in replicating the strategies utilized by Romney to accumulate these millions.

Vast Account Holdings 

Reports recently featured in The Wall Street Journal state that Romney had tens of millions of dollars in his IRA that he utilized to invest in various Bain Capital deals.

One report indicates that Romney has an IRA that contains between $20.7 million and $101.6 million, which represents a substantial fraction of his total assets. The financial information suggests he used either a traditional IRA or SEP-IRA to make these investments, which means he will need to pay taxes when he takes distributions upon retiring.

A later Bloomberg article confirms that Romney indeed had a SEP IRA during the years he spent at Bain, which is a plan that is similar to a 401(k), but differs from the more traditional plan in that contributions come solely from the employer. The maximum contribution that was allowed during the period Romney worked at the financial services firm was $30,000.

Since he worked at the company between 1984 and 1999,  he would have accumulated around $450,000 in the account during this period. Although there are limits specified by the IRS on how much can be contributed to these self-directed, tax-advantaged savings accounts every year, there is no limit on how much the funds can appreciate. A principal amount of $450,000 expanding to $102 million represents a substantial appreciation of 227 times the original funds.

Benefits of Using Self-Directed Roth IRAs

One important thing to note is that Romney may have generated higher returns by utilizing a self-directed Roth IRA instead of a SEP IRA. Data provided by the Center on Budget and Policy Priorities revealed that the total taxes paid by Americans reached historic lows, or close to that level, in 2011.

Since many market participants expected income taxes to rise in the future, and using a Roth IRA means being taxed now instead of later, Romney could have generated a lower after-tax return by using a Roth account.

It is also important to note that the amount of money Romney earned prevented him from using a Roth IRA due to his inclusion in a higher tax bracket. Under a 2010 provision, however, he could have transferred funds to one of these accounts.

2010 Provision

After 2010, IRS regulations allowed individuals to convert their traditional IRA to a Roth IRA without paying a penalty, regardless of their tax bracket. This provision has provided investors using IRAs with additional freedom over how their savings are taxed.

Benefits of a Self-Directed Roth IRA-LLC with Checkbook Control

In addition to the tax benefits associated with a Roth IRA, this type of account can lead to greater control over investment opportunities.  Working with The Entrust Group to establish a self-directed Roth IRA LLC will allow for checkbook control.  Owners of these accounts gain access to a wide range of investing options - including private equity funds, real estate, hedge funds, private placements and more - with the ease of writing a check. Additionally, all capital gains that are realized, or dividends that are paid, are allowed to accumulate tax-free and will not be subject to taxation when distributions are taken.

These IRA-LLC structures allow investors to directly invest in the assets they want their accounts to hold without having to go through the usual process of submitting paperwork to an administrator and then obtaining approval to execute transactions.

If you would like to learn more about how you can access more investing options and potentially earn higher returns by setting up a self-directed IRA, SEP IRA, or Roth IRA-LLC, call us today.