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Explaining Mitt Romney’s IRA Success and more | Client Q&A

AdMail Podcast

In the first episode of AdMail, IRA Financial’s Adam Bergman answers questions about Solo 401(k) contributions, Mitt Romney’s IRA and Adam’s hairstyle!




Introducing AdMail, the new audio-only podcast from IRA Financial president, Adam Bergman. Each week, Adam will pick out a few questions to answer on the episode. Of course, most will be focused on retirement plans and planning, but some will be whimsical for sure. In the premiere episode, Adam will talk about the difference between employee and employer contributions in a Solo 401(k); How Mitt Romney did not violate the Prohibited Transaction Rules; and why Mr. Bergman changes his hair all the time.

Question 1 from Teresa L. in San Jose, CA: Employee vs. Employer Contributions for a Solo 401(k)

Teresa is a Solo 401(k) client who has a sole proprietorship that earn Schedule C income. As anyone who has access to a workplace retirement plan, you know you can contribute to it as an employee. The IRS sets the limits each year. For 2020, you may contribute up to $19,500, plus an additional $6,500 if you are at least age 50.

As a self-employed individual, you have the option to contribute as both an employee and an employer, which increases the limit to $57,000 and $63,500 for 2020. The employer contribution, also known as a profit sharing contribution, is a percentage of your self-employment income. In this instance, Teresa may contribute 20% of her net self-employment income. If she earned $60,000, she may contribute an additional $12,000 as an employer, in addition to the $19,500 as an employee. This gives her a maximum contribution of $31,500 she can put away in her Solo 401(k).

Note: if the plan allows, the employee contribution can be made to a Roth 401(k), which is after-tax funds. However, a profit sharing contribution can only be made with pre-tax, or traditional, funds. Those funds can be rolled over to a Roth if the plan allows for it.

Question 2 from Ben C in New York, NY: How did Mitt Romney invest his IRA into his Fund without blowing the Prohibited Transaction Rules?

The prohibited transaction rules state that only your IRA can benefit from an investment it makes. You, the IRA owner, and other disqualified persons cannot personally benefit from the investment, either directly or indirectly. There’s a lot of talk about Mitt Romney’s IRA, especially the value of it. People can only guess, but the thinking is that he has $50 to $150 million in the plan. How did it get so large without breaking any IRS rules?

As we talk about all the time, you shouldn’t co-mingle personal funds with IRA funds when making an investment. Some people see that Mr. Romney invested his IRA alongside his company, Bain Capital. How can he use his IRA in a investment involving his business? Essentially, the IRA investment must be a majority (50%) investment. This was not the case, since there were multi-billion dollar deals that Romney and his company were involved in. Further, the PT rules may come into play if you need IRA money to make an investment outside of the plan. Obviously, Bain Capital is a billion dollar company and can make any investment it wanted, without the help of IRA funds. Mr. Bergman goes into the details on the podcast.

Question 3 from Joey A in Buffalo, NY: Why do you Change your Hairstyle all the Time? 

Finally, in this week’s lighthearted question, Adam talks about, of all things, his hair. If you watched Adam’s videos over the last several years, you will see many different “dos.” Like many people, he gets bored with the same haircut. For awhile, he had longer hair, but living in Miami, that’s not always the best, especially when wearing a suit. Some days, he simply feels like getting it cut and going with a shorter look.

He likes the freedom to do what he wants, even as a lawyer. Pushing the envelope with hair and footwear, Adam didn’t always go with the flow. Now, with the coronavirus, he’s pretty much stuck with growing his hair out. If you’ve seen how his wife cut their son’s hair, you may know why!

AdMail – Keep it Coming

We hope you enjoyed the premiere episode of AdMail. Mr. Bergman will take the best questions each week and answer them in the most detailed way he can. If you have questions for him, shoot him an email at [email protected].

As with his other podcasts, you can check out AdMail on SoundCloud. Obviously, this is the first episode, so there’s not much there yet. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!

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