How to make the 99% look like fools with a 401K
(Reuters) - In the wake of news reports last week that presidential contender Mitt Romney owns an individual retirement account worth as much as $101 million, questions are growing over how it could have gotten so big when contribution limits are capped at $5,000 or $6,000 a year.
Tax lawyers and accountants suggest an answer: Romney may have made use of an Internal Revenue Service loophole that allows investors to undervalue interests in investment partnerships when first putting them into an IRA. These assets can produce returns far in excess of those that could be generated from other investments made at the capped level.
An investor could even set an initial value for a partnership interest at zero dollars, because under tax regulations an interest in a partnership represents future income, not current value, said Chris Sanchirico, co-director of the Center for Tax Law and Policy at the University of Pennsylvania Law School.
Whether Romney used this technique, which is legal, when he put partnership interests into his IRA is a question that won't likely be answered when he discloses his 2010 tax returns on Tuesday.
Romney's IRA, valued at between $20.7 million and $101.6 million, as reported by The Wall Street Journal last Thursday, holds stakes in 13 investment entities run by Bain Capital, the private-equity firm he cofounded and led for 13 years.
"One possibility for its size is that he put his Bain partnership interests into the IRA and valued them at a very low number," said David Weisbach, a law professor who focuses on tax at the University of Chicago Law School. snip / end quote
As CEO he made contributions to his 401k, which were managed by ... Bain. This allowed him to buy a special class of stock from ... Bain. This stock had the very special property that it paid huge dividends regularly and almost immediately based on the profits of ... Bain.
/well, when you make an obscene amount of money shutting down steel mills and sending jobs to China, you have to put those profits to work somewhere, amirite?
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