Romney's $20 Million IRA: A Lousy Investment? (Time.com)

Mitt Romney may have made the classic IRA mistake: holding low-tax investments inside a tax-favored account. His IRA strategy isn't clear, of course. Romney continues to guard his personal finances. But details are trickling out, and even if it turns out that Romney's traditional IRA is built right for him, the securities he holds in it serve as a valuable reminder that not all investments belong in a tax-favored account.

Romney's IRA is valued at between $20.7 million and $101.6 million, according to The Wall Street Journal. That's an extremely wide range that the Journal found in Romney's latest financial disclosure report, filed in August. His IRA produced income between $1.5 million and $8.5 million last year.(MORE: Cash Back: Banks Battle for Your Rollover IRA.)

So he's not like most of us, financially speaking. But he is exactly like us in that he has limits on how much he can contribute to an IRA, or to a 401(k) plan that can be rolled into an IRA. Given those limits it's remarkable that he has been able to amass such wealth in a tax-deferred account.

For most of his years at Bain Capital, the annual IRA pre-tax contribution was capped at $2,000 and the annual 401(k) pre-tax contribution, including employer match, was capped at $30,000. Other limits are in force today: $5,000 for an IRA ($6,000 if you over 50); $16,500 for a 401(k) ($22,000 if you are over 50).

Assuming Romney was maxing out pre-tax contributions, as should anyone who can afford to do so, he still would have needed extraordinary returns within his tax-deferred accounts to build such a big balance. He must have been investing in stocks and other high-growth potential vehicles, which produce a capital gain.

Here's the rub: The max capital gains tax is just 15%. That's what Romney would pay in federal tax upon selling his stocks from a taxable account. Yet when Romney begins taking distributions from his IRA, as he must in his 71st year, the money will be subject to federal income tax at rates of up to 35%. That tax-rate disparity is why it often makes sense to hold stocks in a taxable account and things like real estate investment trusts, rental properties, bonds and other income-generating investments in an IRA or 401(k). This is especially true for the wealthy, like Romney, whose net worth is about $250 million. Rich people have ample resources to max out tax-deferred vehicles with bonds and hold their stocks in a taxable account -- all while maintaining a desired asset allocation of, say, 60% stocks and 40% bonds.(MORE: More Fees, Fewer Branches as Banks Cope With Lower Profits.)

This doesn't necessarily work with limited resources. If you only save in a 401(k) and must stretch to get the full company match, you're probably better off with a mix of stocks and bonds in that account. Stocks also make sense in a tax-deferred account with at least 20 years before distributions begin, according a study by T. Rowe Price. And holding stocks in your IRA won't hurt if your income tax rate will shrink when you begin to take distributions.

But, in general, it makes sense to add low-tax investments like stocks (even dividends get taxed at a max 15%) to a taxable account and income-generating investments to a tax-deferred account -- especially with fewer than 10 years to retirement. A presidential candidate probably knows that. But thanks, Mitt, for the reminder.

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Lousy jobs number complicates debt deal for both Obama and GOP (Exclusive to Yahoo! News)

By Jim Tankersley
National Journal

June's woefully underwhelming increase in jobs is a climactic twist in the negotiations between President Obama and congressional Republicans over federal borrowing, government debt and America's economic future.

Best-case scenario, it's a Michael Bay twist: dramatic, explosive, but it all works out in the end.

Worst case, we're looking at M. Night Shyamalan: quite jarring, and potentially very scary.

The Labor Department's report Friday morning that the economy added just 18,000 net jobs last month, or roughly six figures below the consensus forecast from economic analysts, immediately hardened conservatives' and liberals' beliefs about why the recovery continues to sputter and what it needs to kick into gear. That hardening, and the political pressure that will ratchet up along with it, is the unwelcome twist in the endgame negotiations over raising the federal debt ceiling.

Whether his economic advisers acknowledge it or not, Obama now must confront new and persuasive evidence that he has, once again, overestimated the strength of the recovery. The White House has said for months that the economy was past the point of needing more help from the government, even as gas prices rose and sapped consumer spending, and Japan's earthquake disrupted global trade. The president has mimicked Republicans in calling for government belt-tightening, even as the public sector steadily sheds jobs, including 39,000 more in June.

On Friday, liberals more or less revolted against that philosophy. The June jobs report "demonstrates austerity is killing the recovery," the Campaign for America's Future said in a press release. Economic Policy Institute economist Heidi Schierholz warned that the labor market is in "full retreat" and said Obama and Congress "need to stop talking about deficit reduction and start talking about job creation."

For Obama, that adds up to a lot of pressure to get more money, now, into consumers' hands as part of a debt-ceiling deal, possibly in the form of a deeper cut in payroll taxes. Which is to say, at a time when the president has steadily moved toward Republicans at the bargaining table, he might need to throw down a few new demands of his own.

The twist might be even more dramatic for House Speaker John Boehner, who is spearheading GOP negotiations on the debt ceiling and demanding trillions of dollars in spending cuts along with increased borrowing authority.

Boehner greeted the jobs report with a now-stock response, calling it evidence that "the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country." Other conservatives were harsher: Bill Wilson, president of Americans for Limited Government, said it was "time for this president to end his love affair with trillion-and-a-half-dollar deficits and higher taxes on those who produce jobs."

The pressure is now certainly rising on Boehner not to cut a deal, any deal, with Obama that gives an inch of ground on federal spending. There are two reasons for that. The first is that weak jobs numbers appear to weaken Obama's hand at the table. If the economy already looks terrible, Republicans might conclude, how much could the president really blame the GOP if negotiations fail, the government defaults, and markets tank?

The second explanation is entirely political. Once Boehner cuts a debt-ceiling deal - unless it's a very short-term one - the Republican Party loses some of its best cudgels for battering the president on the economy. Working together, Republicans and the president will have reduced uncertainty over federal debt levels and cut government spending. What would Republicans' "Where are the Jobs?" press releases say next month, in that case?

A U.S. default, or a drastic and immediate cut in spending to avert one next month, would give this recovery a very unhappy ending. Most analysts say America would risk falling back into recession. Avoiding that scenario just got more difficult. Let's just hope this isn't The Sixth Sense all over again, and we're not dead already.

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