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Yo, buddy
Bart!
contributions to 401(k)s and, I’m pretty sure, to ESOPs as well. The current (2012) contribution limit on 401(k)s
is 50 percent of one’s wages up to $17K per year, except that (starting the year one turns 50 years old) one can
start making “catch-up” contributions up to another $5,500 per year—stuffing in a ‘little extra’ as retirement gets closer.
Those limits have been lower in the past and are roughly increased over time due to inflation. [With an IRA, one can
similarly make “catch-up” contributions up to another $1,000 per year ($6K total).]
I believe
there are also additional limits for so-called “highly compensated
employees (HCEs)”, which I’d guarantee
Mitt would qualify as. Since I’m NOT an HCE, I don’t have much
knowledge of such things, but my understanding is
that the rules are supposed to keep the HCEs from walking off w/ all
the money. As participation in the program by
non-HCEs (poorly compensated employees?) increases, then HCEs
can increase their participation, otherwise, it’s
limited as to how much (percentage of wages) the HCEs can
contribute. See http://en.wikipedia.org/wiki/401(k)#Highly_compensated_employees_.28HCE.29
for more details.
Shirley among your dozens of readers you
have some HR professionals who could elaborate on and/or correct what
I’m saying, but I think I’ve got the gist right. And, other than
the specific dollar amounts, I think what I’ve said applies to ESOPs as
well.
These
wouldn’t necessarily make it impossible to get $100M into an IRA, but
they wouldn’t
help the case below,
either. There IS an upper bound on what can be contributed.
Now, that
said, I can conceive of a way it could perhaps be done.
Say you’re
a CEO of a company…call it Bain. When you write up your 401(k) or
deferred compensation plan,
you permit it to invest in stocks (most (all?) companies (like Enron,
or mine) at least permit investing 401(k) contributions
in company stock), but my understanding is the company can permit
investment in whatever it wants to permit.
So, Bain CEO writes up Bain’s 401(k) rules to permit investments in
another company’s…call it Cain…stock.
As an HCE of Bain, you put aside your max. $17K per year into the Bain
401(k), which you then direct to be
invested in $17K of Cain company stock.
Maybe it
just so happens that you’re also the CEO of Cain. And on
your Cain company stock, you can declare dividends
(growth) of whatever you can imagine and or fund. Say (Doctor
Evil-voice) $1 million per share!? Now, as HCE of Bain,
you’ve put away your $17K per year in your Bain 401(k), but you’ve
received dividends of millions on the Cain stock it’s
invested in. Do that for a bunch of years and poof, you’ve got
$100M in a 401(k), which can then be rolled into an IRA as described
below.
Hmmm, I
just thought of something else—it wouldn’t have to be a stock; it could
be a bond (a fancy name for a loan).
And you could agree (w/ your Cain hat on) to pay whatever interest rate
you wanted your Bain hat self to receive…
say (Doctor Evil-voice) 1 million percent per year!?
As I was
thinking this idea through, this analogy came to mind. Maybe it will
help.
Imagine you
want to park a blimp ($100M) in your garage (IRA)…hey, it’s too
big! Especially when the IRS says you
can only open the garage door up 2 feet (annual limitation).
But—what if you slipped the deflated blimp under the door
with an air hose hooked to a giant air compressor (dividend/growth
generating stock/huge interest rate bond)?
The uninflated airbag fit into your garage easily and once you turn on
the air compressor w/ the hose attached, it’s only a
matter of time before your garage is full of inflated blimp which is
limited only by the size of your garage. Now you meet
all the IRS regulations AND achieve insanely great returns on your
“only” $5K (or $17K) per year retirement account.
Not bad
work, if you can get it!
Well,
that’s all I can think of. I’ll let you and your skilled readers
have at it!
Take care,
Eddy
A www.bartcop.com pillar
Bart,
I had thought the problem's with Mitt Romney's IRA were gone, but apparently they are
still bothering some people, who say, "How can you possibly get $100M in an IRA if the
maximum amount you can contribute is $5k/year?" Well, if you include the "if" phrase,
you can't. But that's not the only way to get an IRA.
For example, I worked at a company that had an ESOP (employee stock ownership program)
as its main retirement plan. Around 10% of my salary was contributed every year to invest in
company stock. When I left the company, that stock was sold and rolled over into an IRA.
For me--a middle-class working grunt--that meant that, after seven years of employment,
I had a $40k rollover into my IRA, in addition to the $5k I was allowed to contribute every year.
I was also allowed to roll over my 401k plan, worth over $60k.
Let's scale here. Mitt made at least 200x what I made every year. If he had the ESOP and
the 401k, he would already have had $20M in seven years. Now add that he was at Bain for
longer that that, and that an ESOP grows with the value of the company stock. I see no reason
why he wouldn't have had $100M in combined ESOP and 401k -- and then rolled them into
an IRA when he left Bain.
Russ