The Wall Street Journal reports today in its story entitled 'Romney's Unorthodox IRA' that Mitt Romney has between $20.7 million and $101.6 million parked in his IRA.

IRA's were created by Congress as a means of encouraging Americans to save for their retirement. It appears given the magnitude of the amounts involved that Mitt Romney is using his IRA in a complex tax avoidance scheme.

As the WSJ reports;

Under federal law, Mr. Romney isn't required to pay annual taxes on the account's investment gains, and the bulk of his contributions to the fund are likely to have been pretax dollars, IRA experts say. As such, the Romney IRA has enabled the current Republican front-runner to defer paying taxes on a sizable portion of his wealth -- although he could face high tax bills when he eventually withdraws the money.



IRAs do allow individuals to avoid paying taxes on their current income and deferring all additional taxes until the funds are withdrawn from the IRA in retirement. For this reason, Congress saw fit to put a maximum contribution limit on the IRAs of $2,000 a year. Any amounts contributed to an IRA beyond this maximum must be contributed after the paying of all required taxes.

For Mitt Romney to have accumulated $20 to $100 million in his IRA suggests that somehow he had found a way around this $2,000 a year limit to contributions as there is no way contributing $2,000 a year could ever grow to $20 million in one's lifetime, much less $100 million, regardless of how good an investor one is.

One method Mitt Romney may have employed is to have made his initial investments in a 401(k) plan on a pre-tax basis because 401(k) plans allowed up to $30,000 a year in annual contributions back in the 1980's without the payment of ordinary income taxes. But even with making $30,000 contributions each year, it is hard to see how a $20 to $100 million fortune could be amassed in such a short time.

This suggests, and the Wall Street Journal article hints at this, that Romney was not making cash contributions to his IRA but rather parking equity shares of his companies' investment funds there, or quite possibly putting shares of private companies that his firm bought into his 401(k).

If this happened, we need to know at what valuation Romney made these contributions as it is very easy to claim a low stated value for shares of private companies or investment funds that have no publicly available market price. If Romney purposely understated the true value of the shares he contributed to his retirement plan he could be held criminally liable.

But Romney did not stop there with his tax avoidance scheme. It appears (and appearances are all we have at this point since Romney refuses to release his tax returns until the Republican nominating process is effectively over in mid-April) that Romney then at some time, possibly at his retirement, converted his 401(k) plan into an IRA and thus permanently avoided the contribution limits on IRAs.

But, as the WSJ reports, "Under current tax law, anybody investing an IRA in a private-equity fund, as Mr. Romney did, would likely incur a hefty special tax on 'unrelated business income,' also known as UBIT. This tax, (is) assessed at a maximum 35% rate..." There is no indication that Romney paid this tax.

And, according to the WSJ, Romney also may have made use of offshore tax havens like the Cayman Islands to further avoid paying his taxes. Romney's company, Bain Capital, made liberal use of offshore vehicles and one way to avoid paying the UBIT tax referenced above is to claim that Romney was not investing in a private equity fund, but rather in an off-shore corporation that itself invested in the private equity fund. ABC News reports that Bain Capital has set up over 138 secretive offshore funds in the Cayman Islands.

Romney has reported recently that his actual effective tax rate is around 15% per year. Robert Reich, as reported in the Huffington Post, suggests that Romney and his private equity funds most likely made ample use of the carried interest rule that allows hedge funds, LBO funds and private equity funds to compensate their managers at capital gains rates rather than ordinary income rates, an advantage only available to wealthy Wall Street insiders.

But Romney was not happy paying 15% per year. By bastardizing the intent of IRA legislation meant to help working Americans save for retirement, Romney has succeeded in shielding $20 million to $100 million of his staggering personal wealth from all taxes to date, an effective tax rate of 0%.

Mitt Romney with all his tax dodging schemes has as much chance of being elected president in this tough economic climate as a draft dodger would have had during the Vietnam War.

John R. Talbott, previously a Goldman Sachs investment banker, is a best selling author and economic consultant to families whose books predicted the economic crisis. You can read more about his books, the accuracy of his predictions and his financial consulting activities at www.stopthelying.com