Massachusetts Governor and presidential candidate Mitt Romney appears to have grown his individual retirement account (IRA) substantially through a private equity investment in an IRA account that benefitted greatly from tax-deferred appreciation, according to PENSCO Trust, a provider of custodial accounts for tax-deferred investments. However, Romney could have grown that wealth even more.
According to The Wall Street Journal on Thursday, January 19, 2012, Gov. Romney's former employer, Bain Capital, made an investment in an IRA on his behalf that appreciated to between $20 million and $101 million. According to the Journal, the investment appears to have been in a traditional IRA instead of a Roth IRA, which offers additional tax benefits in protecting investment gains.
PENSCO Kelly Rodriques notes that had Romney's investment been in a Roth IRA, his gains would have been tax deferred and potentially tax free upon withdrawal.
"The Internal Revenue Code has allowed private equity, venture, and real estate investments in tax-deferred accounts for more than 30 years, but this opportunity has not been well understood by investors," Rodriques said. "Gov. Romney's IRA highlights the wealth building opportunity that Americans of all backgrounds can achieve with careful investing through IRAs."
To invest IRA savings in private placements/LLCs and real estate, an individual must open an account with a qualified IRA trustee or custodian. These investments must be made and then held in a SEP-IRA, Roth IRA or Traditional IRA to appreciate tax deferred. Money rolled over from a 401(k) into an IRA can also be invested in alternative assets. Alternative assets qualify for the same tax-deferred advantages as exchanged-traded assets, such as stocks, bonds and mutual funds.
A Roth IRA can maximize an investor's capital gain. Initial IRA contributions aren't tax-deductible, but withdrawals of contributions held over five years and taken after the age 59 ½ are tax free. Unlike a traditional IRA, which requires withdrawals by 70½, Roth IRAs have no similar age withdrawal requirement.
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