Physical gold or ETF for my IRA?

[gap]

From Barrons - FYI
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
.....
Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities.

[jackely]

Gold I would advise not keeping in an IRA except for perhaps an allocation for rebalancing to avoid tax exposure. But mostly it should be the last thing to go in. IMO.

craigr's opinion on all things financial is worth 10 times more than mine any day of the week and I mean that in all sincerity. I'm just throwing my own contararian idea out there because it makes sense to me.

My PP consists mainly of a traditional IRA and a taxable account. The Roth accounts I'm adding will initially amount to less than 10 percent of the total. How much they will grow after that will depend on the small amount they let you invest each year and the price of gold.

According to other advice I've read, when spending down your retirement accounts you should do it in order of greatest tax liability first, smallest last. So I don't expect to spend the Roth accounts for at least 20 years, if at all (I'm 62).

So my thinking is that it's a fairly safe long term bet on the price of gold. If gold disappoints then the only thing I suffer is that more of my investment income will be taxable. If it takes the astronomical leaps that some have suggested, then I can look forward to enjoying my "golden years" tax free. 

I WILL be careful to use multiple ETF's to minimize counter party risk.

One other risk I see in this strategy is that the government might change the rules in the middle of the game, which wouldn't be the first time. I've heard talk of eliminating all capital gains taxes, in which case there would be no point in even having a Roth IRA. I can see them doing away with the Roth IRA but leaving the collectibles tax on gold in place which would leave me really screwed.

If this forum is still around I'll let you know how it went in 20 years.

[melveyr]

Physical gold is an extremely portable and anonymous asset class. It loses both of these characteristics when placed in an IRA. Gold is very different from stocks and bonds, and I like that. Putting it in an IRA waters down its usefulness IMO.

[jackely]

Physical gold is an extremely portable and anonymous asset class. It loses both of these characteristics when placed in an IRA. Gold is very different from stocks and bonds, and I like that. Putting it in an IRA waters down its usefulness IMO.

This sounds like a good argument for holding physical gold, which I don't yet but intend to do shortly, but if one is going to hold some gold in an ETF why does it matter whether it is in an IRA or not?

Still haven't heard any convincing argument about why I would not prefer to have my potentially best performing assets in my Roth IRA. Seems to me that putting cash and long term bonds in it would only "water down" the growth potential for tax-free income in the future.

[ozzy]

One way to view physical gold as future tax-free income would be the fact that its unlikely any government would be aware of profits on it.  For example, one could slowly accumulate gold bullion over many years, then years later in retirement, one could sell some of the gold in small increments and pocket the profits.  Assuming gold has increased in value.

I am not suggesting people should avoid taxes they’re legally liable for, I’m simply saying it could be easily done.

[rickb]

... but if one is going to hold some gold in an ETF why does it matter whether it is in an IRA or not?

A gold ETF held in an IRA (with other PP assets) allows you to rebalance (e.g. sell gold to buy other assets) without paying tax now.  The tax on the ultimate gain is (currently) at least similar - gains on a gold ETF held outside an IRA are taxed at the collectibles rate while gains on a gold ETF (along with everything else) held within an IRA are taxed at the ordinary income rate.

Another potential difference is what happens if these are assets that you don't sell during your lifetime.  I'm not sure if stock "basis step up" rules (the cost basis for stock held by an estate or stock you inherit is reset to the cost as of the date of death of the original owner) apply to gold ETFs, or whether they apply to assets held in an IRA.  My guess is no on both counts, but I'm just guessing.  If anyone's looked into this, maybe they can comment.

[vnatale]

From Barrons - FYI
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
.....
Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities.

Anyone aware of anything similar to this happening in the subsequent nine years?

Vinny

[vnatale]

Gold I would advise not keeping in an IRA except for perhaps an allocation for rebalancing to avoid tax exposure. But mostly it should be the last thing to go in. IMO.

craigr's opinion on all things financial is worth 10 times more than mine any day of the week and I mean that in all sincerity. I'm just throwing my own contararian idea out there because it makes sense to me.

My PP consists mainly of a traditional IRA and a taxable account. The Roth accounts I'm adding will initially amount to less than 10 percent of the total. How much they will grow after that will depend on the small amount they let you invest each year and the price of gold.

According to other advice I've read, when spending down your retirement accounts you should do it in order of greatest tax liability first, smallest last. So I don't expect to spend the Roth accounts for at least 20 years, if at all (I'm 62).

So my thinking is that it's a fairly safe long term bet on the price of gold. If gold disappoints then the only thing I suffer is that more of my investment income will be taxable. If it takes the astronomical leaps that some have suggested, then I can look forward to enjoying my "golden years" tax free. 

I WILL be careful to use multiple ETF's to minimize counter party risk.

One other risk I see in this strategy is that the government might change the rules in the middle of the game, which wouldn't be the first time. I've heard talk of eliminating all capital gains taxes, in which case there would be no point in even having a Roth IRA. I can see them doing away with the Roth IRA but leaving the collectibles tax on gold in place which would leave me really screwed.

If this forum is still around I'll let you know how it went in 20 years.


This forum is still around almost half those next 20 years. However "jackely" seems to have been gone for an indeterminate amount of time!

This forum has still been around almost half those next 20 years. However "jackely" seems to have been gone for an indeterminate amount of time!

The question is whether he will be coming back in 2031 to let us know.

Vinny

[ochotona]

Ozzy, I started a gold taxation thread a while back, click here.

Traditional IRAs are not the best place for gold ETFs. Roth or Taxable Accounts or Taxable Physical.

Roth is tax-free. Also HSA.

Taxable is taxed as ordinary income, but capped at 28% which might be important if you're going to be a wealthy person in retirement, and if tax rates for you would normally be higher than 28%

In Taxable account there are no taxes until you sell, but you can always donate it to charity, or give it as a gift, or sell it during a low income year (like before you take Soc Sec, or if, like many, you might be unemployed in 2020 and 2021). Or sell it for a loss and tax loss harvest.

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

[Libertarian666]

Ozzy, I started a gold taxation thread a while back, click here.

Traditional IRAs are not the best place for gold ETFs. Roth or Taxable Accounts or Taxable Physical.

Roth is tax-free. Also HSA.

Taxable is taxed as ordinary income, but capped at 28% which might be important if you're going to be a wealthy person in retirement, and if tax rates for you would normally be higher than 28%

In Taxable account there are no taxes until you sell, but you can always donate it to charity, or give it as a gift, or sell it during a low income year (like before you take Soc Sec, or if, like many, you might be unemployed in 2020 and 2021). Or sell it for a loss and tax loss harvest.

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

And if you die with it in a taxable account, the basis is revalued to the date at death.

[CT-Scott]

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

This would be true of a 401k also, correct? I know that 401k accounts don't typically have gold options, so I'm guessing that's why you didn't call out 401k accounts.

[Libertarian666]

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

This would be true of a 401k also, correct? I know that 401k accounts don't typically have gold options, so I'm guessing that's why you didn't call out 401k accounts.

Yes, 401k should be the same as IRAs in this regard.

[CT-Scott]

Actually, I guess I'm still confused...

If I've got the option to own paper gold in my 401k account (for sake of argument, let's say specifically the IAU fund), I should be able to trade my IAU for some money market fund later *inside* of my 401k, without any tax implications. So, when I want to *actually* pull some money out of my 401k (when I'm retired) I could just "sell" some of my IAU shares inside of my 401k account, which then becomes money market money inside my 401k. And *then* I withdraw some of that money market money.

So I'm missing ochotona's comment that holding gold inside of a traditional IRA (or 401k) converts cap gains to ordinary income, and thus a bad idea to hold paper gold inside one of these types of accounts.

What am I missing?

[Libertarian666]

Actually, I guess I'm still confused...

If I've got the option to own paper gold in my 401k account (for sake of argument, let's say specifically the IAU fund), I should be able to trade my IAU for some money market fund later *inside* of my 401k, without any tax implications. So, when I want to *actually* pull some money out of my 401k (when I'm retired) I could just "sell" some of my IAU shares inside of my 401k account, which then becomes money market money inside my 401k. And *then* I withdraw some of that money market money.

So I'm missing ochotona's comment that holding gold inside of a traditional IRA (or 401k) converts cap gains to ordinary income, and thus a bad idea to hold paper gold inside one of these types of accounts.

What am I missing?

It's not holding gold in an IRA that converts capital gains to ordinary income.
It's having any gains in an IRA.

[vnatale]

From Barrons - FYI
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
.....
Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities.

Could this happen with any of the current ways of holding gold which are advocated here?

Vinny

[vnatale]

If your only option with physical gold is to buy it and store it at home: forget it.  Buy GLD instead.  You're more likely to lose your physical gold through theft than losing your GLD investment through its collapse.

If you can afford the overhead of a vault (preferably in Switzerland), then it may be a better option than GLD or keeping physical gold at home.

Agree or disagree that storing gold at home is more risky than buying GLD (or other similar paper form)?

[Mark Leavy]

Agree or disagree that storing gold at home is more risky than buying GLD (or other similar paper form)?

Vinny,
You're a poser.

Buy a gold coin.
Buy an ETF.

Sit on it for a bit and then make a decision.

Jeezus christ, you're acting like a 15 year old girl.

[Smith1776]

Neither is more or less risky in principle, you are simply exposing yourself to different TYPES of risk in either case.

The way forward out of this dilemma is the same solution as always: diversification. More specifically, one should engage BOTH solutions to maximize investment prudence.

[vnatale]

Neither is more or less risky in principle, you are simply exposing yourself to different TYPES of risk in either case.

The way forward out of this dilemma is the same solution as always: diversification. More specifically, one should engage BOTH solutions to maximize investment prudence.

I agree.

As I keep reading through all the voluminous notes I have taken from many posts in this forum I'm almost certain that I will definitely own both physical and paper. And, even some allocated.

The next question will be what percentage of my gold portion will go to each.

Finally, of all that gold how it gets distributed among all my various accounts:

Non-retirement

Retirement - Roth IRA's and 401(k)'s, Traditional IRA's and 401(k)'s, Simple IRA's and any other different taxed retirement account not coming to me at this moment.

The 25% stock portion is easiest - most likely all Vanguard Total Stock Market

The 25% cash easiest - most likely all bought T-bills

The 25% long-term bonds - most likely individual bonds rather than a bond EFT or fund.

The 25% gold is by far the most complicated decision - especially the physical part. How much to keep at home, in safety deposit boxes, how many banks.


I'm slowly getting back to figuring out my personal implementation of the Permanent Portfolio once I started looking at my notes for the first time since May 2020.

But in the end, I do believe that I'm not going to take the simple route but a more complex one which has a heavy emphasis on diversification.

Once I spend so much time on something like this I like to get it all done at once and not have to go back and fill in pieces and make revisions.

I will come up with my grand plan and execute it and that will be it....aside from rebalancing as necessary.

[Mark Leavy]

Neither is more or less risky in principle, you are simply exposing yourself to different TYPES of risk in either case.

The way forward out of this dilemma is the same solution as always: diversification. More specifically, one should engage BOTH solutions to maximize investment prudence.

I agree.

As I keep reading through all the voluminous notes I have taken from many posts in this forum I'm almost certain that I will definitely own both physical and paper. And, even some allocated.

The next question will be what percentage of my gold portion will go to each.

Finally, of all that gold how it gets distributed among all my various accounts:

Non-retirement

Retirement - Roth IRA's and 401(k)'s, Traditional IRA's and 401(k)'s, Simple IRA's and any other different taxed retirement account not coming to me at this moment.

The 25% stock portion is easiest - most likely all Vanguard Total Stock Market

The 25% cash easiest - most likely all bought T-bills

The 25% long-term bonds - most likely individual bonds rather than a bond EFT or fund.

The 25% gold is by far the most complicated decision - especially the physical part. How much to keep at home, in safety deposit boxes, how many banks.


I'm slowly getting back to figuring out my personal implementation of the Permanent Portfolio once I started looking at my notes for the first time since May 2020.

But in the end, I do believe that I'm not going to take the simple route but a more complex one which has a heavy emphasis on diversification.

Once I spend so much time on something like this I like to get it all done at once and not have to go back and fill in pieces and make revisions.

I will come up with my grand plan and execute it and that will be it....aside from rebalancing as necessary.

Xan, I am dying to make some money here.
Is there any way for me to bet that Vinny will sit on his ass and do nothing for the next six months?

I'd be happy to cut you in at 20%.

[ozzy]

I created this post 10 years ago. I ended up owning both physical gold and ETF (IAU).

Vinny - buy a few buffalo coins, trust me, it's a great feeling.

[Xan]

Xan, I am dying to make some money here.
Is there any way for me to bet that Vinny will sit on his ass and do nothing for the next six months?

I'd be happy to cut you in at 20%.

I think frugal is still the ass-sitting champion.

And Mark, I'm afraid the problem is that nobody will take the other side of your bet!

[vnatale]

I created this post 10 years ago. I ended up owning both physical gold and ETF (IAU).

Vinny - buy a few buffalo coins, trust me, it's a great feeling.

I have been known for making the simple complex so I think for when I finally buy my gold coin allocation that I will be many different types of coins...to cover the diversification angle.

[vnatale]

An exception to my preference for safe deposit boxes would be for persons who are fortunate enough to be among the much maligned 1%.  If your investments are so large that you could not conveniently store your physical gold in two safe deposit boxes then it's probably time to start thinking about an allocated account in a bullion vault.  The Perth Mint strikes me as a good place for HNWIs to stash their gold.  Switzerland is good, but it is a bit pricey to bank there and most Swiss banks don't want much to do with Americans these days.  Even those that will take our business normally won't let you through the door unless you're ready to deposit seven figures with them. 

A final word on Swiss banks.  Yes, I think they are still probably the safest place to put money and store gold.  But their vaunted reputation for bank secrecy is pretty much dead.  Recent events have demonstrated quite clearly that if the US Treasury really tightens the screws on them, they will cave.

I received quotes from my bank for four different sized safety deposit boxes.

When you stated above "two safe deposit boxes"...what were the size of those boxes?