Private Companies

Mitt Romney and the Mystery Behind His IRA

August 17, 2012

During Romney’s time at Bain Capital LLC, the company used a SEP-IRA that had a maximum contribution limit of about $30,000 per year. Assuming Romney maxed out these tax-deferred contributions, he would have invested approximately $450,000 in his individual retirement account during his tenure at Bain. BUT, he may have up to 227 times that amount in his IRA! The baffling mystery about Mitt Romney’s significant wealth is how he was able to build up between $21 million and $102 million in his IRA during the 15 years he was at Bain Capital.

So how did he do it? Of course, we don’t know, but there are several theories out there that attempt to make sense of it all.

One theory is that Romney contributed to his IRA using the low-basis, low-value stock he received as a partner at Bain Capital in the different buyouts the company did while he was there. Another theory is that Romney contributed limited-partnership interests to his IRA in Bain’s buyouts, and quite possibly only at a fraction of their market value.

While there are limitations concerning the amount of money that can be contributed tax-deferred to an IRA, there are no restrictions on the amount that the contributed funds can earn, and can continue to earn, on a tax-deferred basis, even after the contributions have stopped. Therefore, in the future when Romney withdraws funds from his IRA, the IRS will get a hefty sum of money in taxes. Too bad his money isn’t invested in a Roth IRA!

Diversify!

August 13, 2012

Diversification is a strategy that should be deployed by anyone who cannot accurately predict the future – which is just about everyone. While the stock market provides an ability to spread investment risks over geography, company size, market sectors, and other categories, the fact remains that public exchanges cannot provide full diversification.

You cannot own titled real estate purchased from your broker in your IRA – instead, he will likely offer a choice of publically traded Real Estate Investment Trusts (REITS). You cannot own gold bullion in your IRA if you rely on the stock market – rather, the market will proffer equity interests in mining companies instead. Most business startups have no access to public markets at all, with investors unaware of the potential attractive returns to the early equity participants.

Without a self-directed IRA from our Florida self-directed IRA administration company, it is unlikely that full diversification can be achieved in a retirement account. Whether you are looking for cash flow from property rentals, private lending and investing in tax liens, or instead investing for future appreciation in precious metals, limited partnerships or new business ventures, the choice is yours with a self-directed IRA. Call us at 407-367-3472 to learn more!

True diversification lies with understanding you choices, taking time to know the market, and executing your purchases with confidence, then staying involved in your investments.

Finding Opportunity in Private Placements

August 7, 2012

A hush sweeps over the ballroom of a four star Orlando Resort as a well-dressed CEO and CFO stride to the stage. They now have exactly 20 minutes to convince a sea of well-heeled investors and venture capitalists that their new business venture has a compelling market advantage, will enjoy meteoric growth, and one day, be acquired or “go-public”. They are seeking a five million dollar infusion for further product development and market expansion.

Meanwhile, across town, several leading bankers from competitive firms meet in secret at a private business club to discuss the chartering of a new community bank to serve an underrepresented business segment of the marketplace. It will take a minimum of $6 million to launch the bank, and over the course of raising capital, involve from 400-600 individual investors.

In 2006, there were 179 new banks chartered in the United States, led by 21 new financial institutions in both California and Florida. Over $1 billion was raised for these banks – all from the bank principals, board members and private individuals. In the same year, venture capital funds based in the US raised over $24 Billion – representing a mixture of pension plan dollars, combined with investments from high net worth individuals. Florida Venture, the sponsor of the annual ballroom event, has assisted in raising over $1.4 Billion for new companies headquartered in the Sunshine State.

What does each of these groups have in common? They each represent an opportunity for private investors to risk capital in order to potentially reap the rewards of significant growth – outside the traditional stock market choices. Just as importantly, these investments may be accessible to IRAs and Individual 401(k) plans through a self-directed administrator such as NuView IRA in Orlando.

While your stock broker may consider private investments a risk not worth taking, it may provide an important avenue to diversify your holdings and spread your risks across another class of investments. Here are just a few of the pros and cons of private placement investments:

Advantages:

  • Ability to meet/know the principals involved
  • Utilize your personal knowledge of an industry
  • Get in on the ground floor
  • Access large up-side potential
  • Help the company grow – through referrals, etc…
  • Participate in the excitement of funding a new venture

Disadvantages:

  • May be difficult to exit the investment quickly
  • May require investor qualification
  • True Market Value may be a challenge to determine
  • Company may have limited operating history to judge performance
  • Could be higher investment risk
  • May not be subject to certain government reporting requirements

The challenge of investing in private placements often can be locating the opportunity. If your interest is banking, most states will post a listing of denovo (newly chartered) banks on their state regulatory website, together with contact information. For other private ventures, you may turn to the myriad of venture capital clubs that meet routinely in cities across the country – one such listing is found on www.venturea.com. Simply by talking with financial professionals such as bankers, lawyers, CPAs, opportunities may also be uncovered right in your own community.

Regardless of the source, the responsibility is on the investor to properly vet the company, do the research and make a calculated decision on risk vs. reward. Self-directing your IRA or tax deferred funds may also prove to be the best source of capital for you, especially if the investment may be illiquid for several years – and the funds are not needed short term.


Glen Mather is President of NuView IRA, Inc., a leading self-directed IRA administrator in Orlando. He can be contacted at 407-367-3472 or [email protected]

Self-Directed IRAs

August 3, 2012

Last week, the Romney team visited the Villages, a sprawling community of over 100,000 residents over the age of 55, only about an hour from the NuView headquarters in Orlando. What does this group have in common? And why do politicians consider this a critical stop to deliver their stump speech? These residents have an obsession with protecting their social security, Medicare, and retirement plans. Politicians use this group as a surrogate to prove their policies are “senior-friendly”. I’m told that until you are retired, you cannot understand the helplessness of relying on personal savings, which have been ravaged by low interest rates and stock market uncertainty.

If only those of us who are still working had the same obsession about saving and investing wisely! Most workers continue to rely solely on the advice of money managers, or mutual fund managers to ensure their retirement is adequately invested. When the market takes a dip, participants in employer sponsored plans often scale back their contributions, due to a lack of confidence in their investments or their advisors. Most professional financial advisors see lower stock market prices as a golden opportunity to buy, while human nature moves investors to become more cautious and withdraw.

It’s time that we all woke up to the fact that no institution, money manager, or even financial advisor has more at stake than you do – in the health of your retirement funds. Despite the droning platitudes of the politicians, their ability to ensure a stress-free retirement for you is limited by huge budget deficits, tax stalemates, and the burgeoning growth in the number of taxpayers moving into their retirement years.

If you feel inadequate in making good investment decisions, find several friends, associates and professionals who can serve as your advisors – and avoid being influenced only by one source. Just as you wouldn’t subject yourself to a critical medical procedure without a second opinion, don’t move forward with important investment choices without consulting with several advisors.

As stated in the Wall Street Journal, over the next ten years, private investment choices are likely to outpace the public markets. Ensure that you understand all your options, including a self-directed individual retirement account that can access those private investment choices. You may find that understanding your options for investing in rental real estate, private lending, or buying precious metals through your IRA may be easier than reading a 100 page disclosure on the latest IPO. The best result is one that results in making your retirement political proof, providing a greater insulation against the potential damages of future policy decisions, and less reliant on the governments “dividends”.

 

The Basics of Self-Directed IRAs

July 27, 2012

Vice president of NuView IRA, Jason DeBono, explains the basics of self-directed IRAs.

Banking on your IRA – Through Lending

June 14, 2012

A few years ago, a trio of elderly investors arrived at the reception area of my office in Orlando unannounced and without an appointment, a relatively rare occurrence. Being a good host, I invited them into my conference room, offered them coffee – then I placed several brochures in front of them, describing our self-directed IRA services.

I presumed the group had come to learn more about our business, so I immediately launched into my normal impassioned message on the power of self-direction by “Unlocking Your IRATM”. No sooner had I started, the lone female jumped up and said “Thank God – you do self-directed IRAs and you are local!” Evidently, the group had been self-directing their IRAs for years, but their retirement account administrator’s company had been bought out by a large corporation out of state and they were now frustrated by long delays and poor service. The spokeswomen of the group said; “we have been issuing mortgages from our IRAs for over 20 years and we don’t want to stop now!”

As President of NuView, a leading self-directed IRA administrator in Orlando, I’ve come to appreciate the passion that some of our clients have for lending their IRAs. There can be many reasons that individuals choose this avenue for their retirement plan investments:

  • Easy to Manage: Unlike most real estate purchases, lending through your IRA generally requires minimal management once the loan is in place.
  • Provides Liquidity: While some LLC, Private Placement or Real Estate investments may have a long gestation period, loan payments can be structured monthly, quarterly or annually, providing cash balances that are especially important for individuals that require routine withdrawals or those facing required minimum withdrawals after reaching the age of 70.5 years.
  • Permits Flexibility of Terms: The IRA holder can create the terms of the note to properly reflect the amount of risk he is willing to take vs. the amount of interest that the borrower is willing to pay. For example, the down-payment or interest rate can be increased based on the strength of the borrower’s financial statement or credit rating.
  • Provides Security: Loans can be secured by first or second mortgages, providing the IRA recourse should the borrower default. In the unlikely event that foreclosure is required; the IRA should pay any expenses in obtaining payment or collection on the loan.
  • Can Result in Significant Returns: Our account holders issue first and second mortgages from their IRAs at rates from 8% – 16%, with many charging loan origination fees (points). While some clients locate their own mortgages, many rely on local companies that will match their funds to borrowers, or will aggregate several IRAs into one mortgage.

As with all investments that you make, we would suggest that you speak to your legal and financial advisors regarding the structure of any loan that you would issue from your self-directed IRA. Many times title companies are happy to provide the basic note and mortgage forms in order for you to get started.

I would encourage you to our office in Orlando for more information as to the very basic process by which, you too, can become an impassioned lender of your IRA.


Glen Mather is President of NuView IRA, Inc., a leading self-directed IRA administrator in Orlando. He can be contacted at 407-367-3472 or [email protected]