Romney’s huge IRA makes a comeback in Obama retirement proposal

Obama RomneyIt was a memorable moment in the 2012 presidential race. In their October 16 debate, Defending his blind trust investments, Gov. Romney said:

ROMNEY: Just going to make a point. Any investments I have over the last eight years have been managed by a blind trust. And I understand they do include investments outside the United States, including in — in Chinese companies.

Mr. President, have you looked at your pension? Have you looked at your pension?

OBAMA: I’ve got to say…

ROMNEY: Mr. President, have you looked at your pension?

OBAMA: You know, I — I don’t look at my pension. It’s not as big as yours so it doesn’t take as long.

Mr. Obama’s quip referenced news coverage of the mysterious Romney IRA, in which he had managed to amass $20 million to $100 million – much more than anyone could accumulate under the contribution limit rules without some unusual investments and appreciation.

Romney’s IRA found its way – indirectly – into a broader set of retirement policy reforms unveiled in President Obama’s State of the Union proposals on Tuesday.
The president proposed scaling back contribution limits to IRAs to help pay for other changes designed to bolster middle class retirement security. The cap would be determined using a formula tied to current interest rates; currently, it would kick in when balances hit $3.4 million. If rates rose, the cap would be somewhat lower – for example, $2.7 million if rates rose to historical norms.

Obama renewed his call for “auto-IRAs,” whereby employers with more than 10 employees who have no retirement plans of their own would be required to automatically enroll their workers in an IRA. Workers could opt out, but automatic features in 401(k) plans already have shown this kind of behavioral nudge will be a winner. The president also proposed tax credits to offset the start-up costs for businesses. And, he wants to offset the costs of auto-IRAs by capping contributions to 401(k)s and IRAs. The cap would be determined using a formula tied to current interest rates; currently, it would kick in when balances hit $3.4 million. If rates rose, the cap would be somewhat lower – for example, $2.7 million if rates rose to historical norms.

The argument here is that IRAs were never meant for such large accumulations; the Government Accountability Office (GAO) looked into mega-IRAs after the 2012 election, and reported back to Congress that a small number of account holders had indeed amassed very large balances, “likely by investing in assets unavailable to most investors – initially valued very low and offering disproportionately high potential investment returns if successful.”

Here’s the GAO’s breakout of IRA holdings by size of balance – you can read the full report here.

GAO-IRA

 

Learn more in my column today at Reuters Money.

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