A little math on Mitt Romney’s IRA

I ran across this article on Mitt Romney’s $101-million IRA and it led me to comment on Google Plus. The max yearly contribution for an IRA is $5000 (with some caveats) so it’s hard to see how one could get from there to $101,000,000 without something a bit more creative going on.

I got a few comments to the effect that Romney could have rolled over 401Ks into his IRA without penalty, and that’s definitely true. But 401Ks also have limits, and in fact the government has had limits on total deferred compensations for quite some time.

So I decided to look up the total limits for IRA and 401K contributions and do a little math. You can see the spreadsheet here.

With just an IRA, making the max contribution since 1974, and assuming a 10% annual return, a diligent saver could have amassed around $730,000. Let’s say they were also contributing the max to their 40K since 1987 (I had a hard time finding numbers before then, not entirely sure when 401K started). Our super-saver then rolled over their 401K into their IRA right before running for president in 2012, reaching a total of about $1,700,000. That’s still two orders of magnitude lower than the number cited for Romney’s IRA.

We’re still missing something important – most companies contribute something to employee’s 401K plans as well. I could find some numbers on total deferred compensation limits since 1974, so I put those into a column in our spreadsheet, again with 10% annual return. So assuming between our saver’s and their company they completely maxed out 401K contributions, we could reach $13,000,000 or so. Still an order of magnitude too low.

Now of course none of these numbers are perfect, there’s “catch up” contributions you can add when you’re past a certain age, there may have been other limits over time, etc. I’m definitely not an expert on any of this, so feel free to point out glaring errors in the comments below. It’s also possible that the Reuters article is full of hooey.

But I’m a programmer, and one thing you learn as a programmer is to watch out when your numbers are an order of magnitude too low or too high.

I really doubt Mitt Romney has done anything illegal with his IRA. But it’s hard for me to see how Romney could get to such heights without something along the lines of putting in investment partnerships and setting their value low, as alluded to in the Reuters article. Which is great for him, and a nice clever trick to get around paying his taxes, but personally I don’t find it very impressive.

Not to get too political on this (mostly) geeky blog, but it seems like yet another one of those things you can do if you already have a ton of money / lawyers / accountants at your disposal. Of course, everybody goes through their deductions, puts in last-minute charitable contributions, etc. to try to bring their tax bill down, but not everyone can take it to this level and the people who can take it to this level need tax relief the least.

Let me pull this post back by putting it in the geekiest way possible: You ever play D&D with one of those guys who’s a total rules lawyer? Like, he has memorized every expansion of every edition since Gary Gygax threw a magic missile, and every encounter takes an eon as he pulls out every possible table, caveat, and vaguely-worded paragraph to ensure that his character never loses not even one hit point? Playing D&D with guys like that is excruciating, but it’s even less fun if they insist on starting the game 10 levels higher than everyone else too.

BTW, here’s the spreadsheet for your viewing pleasure. Like I said, feel free to point out everything I’ve gotten wrong, I’m sure there’s something.

2 thoughts on “A little math on Mitt Romney’s IRA

  1. “Mr. Romney tear down your tax wall.”
    “Mr. Romney be a real patriot and please share your secret on how you got to $20 to $100 million in your 401k.”

  2. I saw the 100M 401k number and immediately had same thoughts. The Madoff rule applies here, either he is 100 times smarter than any other investment analyst, or he’s a cheat and a fraud. Take a guess.

    I had heard some info on how he legally gamed the system by insider trading with himself, but can’t find links. The scheme is this. Instead of salary, the sole proprietor, president and CEO of Bain sells himself 15k of options into his IRA/401k. Since Bain is not traded, the options are worth whatever he claims. When Bain is sold off, the options can be exercised or bought out at a huge profit, the capital gains going untaxed. This is one of the speculated reasons for withholding the tax returns.

    I’ve got 30+ years in financial IT, and am confident this is possible and unfortunately legal though somewhat embarrassing.

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