Permanent Value

Week In Review 9/26/14

Bruce Doole
September 26th, 2014

How To Join The 9,000 U.S. Taxpayers With Romney-Sized IRAs Part 1


If it seems impossible to amass a fortune in an IRA during your lifetime, think again.

The Government Accountability Office reported yesterday that about 9,000 U.S. taxpayers have each accumulated at least $5 million in individual retirement accounts. While the GAO didn’t say how they managed to do so, Mitt Romney and some other successful executives offer a road map.

Outsized, tax-advantaged returns in such accounts drew attention during the 2012 presidential campaign, when Republican presidential nominee Romney reported he had an IRA worth $20 million to $102 million. Congress and President Barack Obama have scrutinized IRAs since, saying they weren’t intended to be a tax shelter for millionaires and billionaires.

If you’re an entrepreneur, you can create more than one share class of stock at your company and put $1,000 in a standard or Roth IRA, said Bill Parish, president and chief investment officer at Parish & Co., an advisory firm based in Portland, Oregon. If some shares are valued as low as $0.000001, as Yelp Inc. reported in its S-1 filing with the Securities and Exchange Commission in 2012, that buys a chunk of equity.

Direct ‘Transfer’

“The key is that you transfer the stock directly from the company to your IRA,” Parish said.

As the securities appreciate, investors can sell and diversify into other holdings tax-free until they withdraw funds. Or, in the case of a Roth IRA, the gains aren’t taxed at all, Parish said.

Max Levchin, chairman of San Francisco-based Yelp, reported 2.7 million shares of the company’s Class B Common Stock in his Roth IRA, according to this year’s proxy statement. Class B shares of Yelp are convertible at any time by the holder into shares of Class A on a one-to-one basis, according to the filing.

Yelp shares closed at $76.54 in New York yesterday. That comes out to about $206 million worth of Yelp shares in his Roth account.

At the time of the company’s S-1 filing in February 2012, Levchin reported 3.9 million shares in his Roth account.

Initial Value

The next strategy has involved placing a low initial value on an IRA’s investments.

Romney, the co-founder of private-equity firm Bain Capital LLC, never explained how he accumulated so much wealth inside his IRA. Yet one way that private equity and hedge-fund managers build large balances is by valuing their company’s investments at close to nothing, and they later grow exponentially, said Bobbi Bierhals, a partner at McDermott Will & Emery LLP in Chicago.

A third way to amass money in a retirement account is to work for yourself.

Self-employed people including doctors and lawyers can contribute as much as $52,000 this year to their IRAs. If you start at age 25 or 30 contributing the maximum amount, you don’t need extraordinary investment returns to end up with millions by the time you’re 50, Bierhals said.

Bloomberg News


  • Industrial production slipped 0.1% in August after a gain of 0.2% the month before. Analysts expected a 0.3% increase for the month.
  • Producer Price Index for total final demand was unchanged after a 0.1% gain in July.
  • Consumer Price Index for overall consumer prices fell 0.2% in August after rising 0.1% in July.
  • The FOMC boosted their median estimate for the federal funds rate at the end of 2015 to 1.375%, from 1.125% in June. The monthly pace of debt purchases was cut by $10 billion for the seventh consecutive meeting.
  • Housing starts for August fell 14.4%, following a boost of 22.9% in July.
  • Jobless claims fell 36,000 to a lower-than-expected level of 280,000 for the Sept. 13 week. This is the second lowest level of the recovery.

Source: Ivy Fund

Week in Review – 9/19/14

Bruce Doole
September 19th, 2014

Don’t Throw Away Social Security Benefits, Advisor Warns

Joe Lucey, president of Secured Retirement Advisors in St. Louis Park, Minn., sees two or three couples a month who are throwing away Social Security money.

Because the couples do not know Social Security rules in detail and they are not working with a qualified financial advisor, they are not applying for benefits when they should.

“I recently had a couple come in, both spouses were full retirement age, and neither of them was receiving Social Security. If both members of the couple are full retirement age, it is always wrong for at least one of them to not be getting Social Security,” says Lucey, who specializes in retirement planning.

“In this case, they were both waiting until they were 70 to collect benefits so the individual amounts would have reached their maximum,” he says. Social Security benefits increase by about 8 percent a year for every year the beneficiary waits after full retirement age up to age 70.

“But she could have filed for spousal benefits under her husband’s earnings record and let her own benefits grow. She then could switch to her own benefits at age 70 and the benefits would have grown for every year she delayed receiving them.”

The wife could have gotten about $12,000 a year in spousal benefits for four years [from 66 years of age to 70]. “She was leaving nearly $50,000 on the table,” he says. “This is not rare. I see this kind of situation two or three times a month.”

People who are do-it-yourselfers or who are working only with a 401(k) administrator are in danger of leaving Social Security money on the table that they could be collecting. “They need to work with an advisor who has immersed himself or herself in Social Security regulations and in retirement planning,” he says.

Lucey also says he believes people’s fears that Social Security will disappear are unfounded.

At the end of 2012, 57 million Americans were on some form of Social Security. “If there were no Social Security, many of those people would end up on some sort of welfare program paid for from general revenues and the government is not going to let that happen. There are several proposals that would make Social Security solvent far into the future,” he says, such as raising the retirement age gradually or raising the amount of income on which payroll taxes are paid.

- Karen DeMasters, Financial Advisor


  • Jobless claims climbed by 11,000 to 315,000 in the week ended Sept. 6, which included the Labor Day holiday, an unexpected jump to a two-month high.
  • Retail sales climbed 0.6% in August, the fastest pace in four months, and prior readings were revised higher, boosting prospects for U.S. economic growth this quarter

Source: Ivy Fund


Week In Review 9/12/14

Bruce Doole
September 12th, 2014
Joan Rivers Covered Her $290 Million Bases, Leaving Space for the Intangibles
One of the biggest celebrity fortunes looks relatively simple to distribute. Good estate planning means the heirs can concentrate on mourning, the funeral and the lingering medical questions.

Joan Rivers went out at the top of her game, leaving behind what the wealth rankings estimate is around $290 million for her heirs.

As for what seems to be a comfortable nest egg of $260 million in equity and other investments, it’s a little unlikely that a lot of that money was outside Joan’s estate.

And little gifts of current income hits the gift tax limit remarkably quickly when you end up with $290 million in total to play with. Even $5 million transferred into a trust when Edgar died in 1987 and invested in the broad market might only represent $30 million of Joan’s holdings today.

The estate plan is probably tighter than the funeral instructions. If so, she paid every dollar of tax she wanted to pay.

Scott Martin, Contributor


  • ISM Manufacturing Index increased to 59 in August from July’s 57.1, the fastest growth in three years and the strongest reading in a decade.
  • U.S. trade deficit narrowed in July to $40.5 billion, the smallest since January, largely on growing demand for U.S. autos and petroleum products.
  • Jobless claims rose only 4,000 to total 302,000 in the week ended Aug. 30.
  • U.S. unemployment fell to 6.1% in August because of people leaving the workforce. Employers hired fewer workers than forecast.

Source: Ivy Fund