What we can learn from Mitt Romney’s IRA

Mitt Romney is expected to win the race for a Senate seat in Utah and could end up becoming one of the most powerful players in the United States Senate. Mr. Romney is a former governor of Massachusetts and ran for president in 2012 but lost to Barack Obama. With all of that said, the most interesting thing about Mr. Romney is his IRA account.

Estimates of Mr. Romney’s IRA account are as high as $101.6 million depending on who you ask. No matter the exact number, let’s agree that this is damned impressive considering the maximum contributions to a traditional IRA is relatively small.

According to the IRS website, for 2015, 2016, 2017 and 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 ($6,500 if you’re age 50 or older). Plus, your ROTH contribution is limited by your filing status and your income. We can assume Mr. Romney was well over this income level.

Because he didn’t qualify for a ROTH IRA, Mr. Romney used an ordinary IRA or simplified employee pension (SEP) IRA, which means he’ll have pay ordinary income tax on the gains, starting when he reaches 70 ½.

So, how the heck did Romney’s IRA account reach $100M?

While at Bain Capital, the investment management firm he founded, Romney made investments into startup companies that he thought would take off. He knew that Bain was making major investments into these pre-IPO companies, and, if they succeeded, he could make a fortune post IPO. He put a few thousand down knowing that Bain was investing millions, and he had all of Bains research.

You could have had the same returns buying Bitcoin in your IRA back in 2013. An investment of $100 would have gotten you 1 coin. That coin would have been worth nearly $19,000 at the peak and about $7,000 today. An investment of $5,000 (the contribution limit) would have earned you $94 million had you timed the market right.

The benefits of making the investment with a traditional IRA are 1) using the pre-tax money, and 2) no tax in trades until you reach 70.5 years of age. At that time, you pay ordinary income rates, which are about 37%. 3) tax deferral on all gains and use of your capital throughout the years.

Had you used savings rather than an IRA to buy that Bitcoin, you would have paid long-term capital gains when you sold your Bitcoin on December 16, 2017. This would have been at about 20%.

Had you made the investment through a ROTH IRA, you would pay income tax on your full salary, with no deduction for the retirement account. Then, the crypto would appreciate tax-deferred (as described above) and you would pay zero tax when you sold the Bitcoin. Obviously, if you qualify for a ROTH, this would be the tax-efficient vehicle for high yield investments.

It’s also been reported that Romney used offshore IRA LLCs and UBIT blockers to protect and enhance his IRA returns. Both of these have been used for decades by very high net-worth IRA investors.

An IRA LLC allows you to move some or all of your retirement account offshore. Once that’s done, you can invest in real estate, hard assets, high yield foreign stocks, most physical gold, and just about anything else you like. The most popular investments for high net-worth persons is offshore master/feeder funds.

Moving your IRA offshore should open up your account to higher returns from foreign markets. It will also put you in control of the account. You become the investment manager of your IRA – the Bain Capital if you will – you select the investments and write the checks.

An offshore IRA LLC is especially valuable to those who wish to invest in foreign real estate. Only you will be willing to travel and learn the country. Only you will spend the time and money to find the best opportunities abroad. So, if you’re going to make multiple foreign investments, you should be the investment manager of your retirement account.

If you’ll make only one or two investments, consider using an offshore self-directed account. In these, the custodian makes the investment for you and you save the $3,500 setup costs of an offshore IRA LLC. If you will make multiple investments or want control, then go with an LLC. For more on these differences, see: Self Directed IRA or Offshore IRA LLC?

And, once you have your IRA offshore, you may be able to use it to gain residency in a country like Panama. Invest $22,000 from your IRA into Panama’s friendly nation reforestation visa program, pay legal and other fees from your personal savings, and you can gain residency in Panama. After 5 years of residency, you can apply for citizenship.

For more ideas, see: Best IRA Investments for 2018

The other IRA tool Romney reportedly used is a UBIT blocker.  This one will require a bit of explanation.

When you earn ordinary income in an IRA from a business (not dividends), or make money using leverage, the profits generated are called Unrelated Business Income. UBI is taxed at ordinary rates in the US as earned, which is about 35%.

So, if you buy a rental property in the US, and half the money comes from your IRA and half from a non-recourse mortgage, about half your rental income and your gain when you sell the property will be taxed at 35%. The other 50% will flow into your IRA account tax deferred.

Enter into this same transaction offshore, and add a UBIT blocker corporation to your IRA LLC, and you pay zero tax. UBI is converted to passive income and blocked from Uncle Sam.

I note that these tax benefits for IRAs are ONLY available outside of the United States. Using a blocker corporation in the United States, or with US real estate, subjects you to tax at the corporate level. See: How to invest your IRA into offshore hedge funds and active businesses.

I hope you’ve found this article on what we can learn from Mitt Romney’s IRA to be helpful. For more information on moving your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708.