Liquidate Some Roth Space to Buy Physical Gold?

Discussion of the Gold portion of the Permanent Portfolio

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stuper1
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Liquidate Some Roth Space to Buy Physical Gold?

Post by stuper1 » Fri Dec 23, 2022 2:55 pm

Hey guys,

You're not going to believe it, but I have an actual financial question to run past you smart folks, rather than my usual fare of whining about Ukraine or Covid stuff. I have a real financial dilemma, and I could use some good wisdom from the crowd.

I've never been in a position to max out my 401k and Roth IRA contributions and have much left over to put into taxable investments. Therefore, my taxable investments are pretty small compared to my 401k and Roth, and I've run my Roth pretty conservatively in case an emergency comes up and I need to take out some of the contributions. I think the current percentages in my 401k, Roth, and taxable are approximately 72%, 24%, and 4%. Of the 24% in Roth, say half of it is contributions that I can withdraw anytime without penalty.

The upshot of this is I only have about 2% gold as physical gold (that's 2% of my total portfolio not just 2% of my gold allocation), and the rest of my gold is in my 401k and Roth IRA as ETF gold (IAUM and SGOL). I'm not comfortable with this low amount of physical gold, and especially since many financial prognosticators seem to think that even worse economic times are ahead. I'm afraid that stock/bond prices may drop significantly and real gold prices may rise significantly, but the ETF gold may not react accordingly, because the ETF gold is not fully backed by physical gold or some other vague reason that I probably don't even understand. I know that most financial prognosticators have little connection to reality, but in my own gut I also feel that hard times are ahead, so this time I put a little more faith in what they have to say.

One thing I could do is take out some of my Roth IRA contributions and buy physical gold with them. I could do this without changing my overall asset allocation. The only downside is I would lose out on some of my Roth IRA tax-advantaged space, because of course it's use-it-or-lose-it space and if you ever take it out you also lose it (the tax-advantaged nature). It doesn't seem like that big a deal to me, because in all likelihood my physical gold will get passed down to my kids which of course is tax free in my case, but there is that small chance of another Great Depression, where I might need to liquidate some of it, and in that case I think I would be glad that I had more physical gold.

Bottom line is I think it's a good idea to take out some of my Roth IRA contributions and buy more physical gold, but I'm having trouble pulling the trigger. Does anyone have any helpful thoughts about this conundrum on either side of the issue?
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by dualstow » Fri Dec 23, 2022 2:58 pm

I've run my Roth pretty conservatively in case an emergency comes up and I need to take out some of the contributions.
I would wait for a true emergency.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by stuper1 » Fri Dec 23, 2022 3:01 pm

dualstow wrote:
Fri Dec 23, 2022 2:58 pm
I've run my Roth pretty conservatively in case an emergency comes up and I need to take out some of the contributions.
I would wait for a true emergency.
I should have added more detail. I'm not talking about taking all of the Roth contributions out, maybe just a quarter or half of the contributions, which would increase my physical gold to 5% or 8% rather than the current 2%, hopefully enough to move the needle if financial Armageddon happens. But I would still have more contributions left in Roth that I could take out as cash if a smaller-than-Armageddon emergency happens.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by dualstow » Fri Dec 23, 2022 3:12 pm

I'm sure some wiser people will chime in. I don't know your age or tax situation, but I think I would liquidate something at breakeven in taxable rather than mess with my Roth before I have to, myself.
Just my two cents. (Just my two gold slivers).
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by stuper1 » Fri Dec 23, 2022 3:29 pm

dualstow wrote:
Fri Dec 23, 2022 3:12 pm
I'm sure some wiser people will chime in. I don't know your age or tax situation, but I think I would liquidate something at breakeven in taxable rather than mess with my Roth before I have to, myself.
Just my two cents. (Just my two gold slivers).
I should have mentioned what I have already in taxable, which is just 2% physical gold and 2% cash. So, I could use the 2% cash to increase my gold to 4%, but I think I should keep a bit of cash around for emergencies (mainly if I die in a car accident, I want some cash on hand for my wife to have until she gets insurance money).

Also, my wife and I have stable jobs at this point, still saving a good chunk of money each month. We are both mid-50s hoping to retire in 5 years or so. But if a collapse happens, who knows whether we both keep our jobs.

Does any of that change your thinking at all? Thanks for your input. Appreciated. I hope some others will weigh in when they have time.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by coasting » Fri Dec 23, 2022 8:42 pm

stuper1 wrote:
Fri Dec 23, 2022 3:29 pm
dualstow wrote:
Fri Dec 23, 2022 3:12 pm
I'm sure some wiser people will chime in. I don't know your age or tax situation, but I think I would liquidate something at breakeven in taxable rather than mess with my Roth before I have to, myself.
Just my two cents. (Just my two gold slivers).
I should have mentioned what I have already in taxable, which is just 2% physical gold and 2% cash. So, I could use the 2% cash to increase my gold to 4%, but I think I should keep a bit of cash around for emergencies (mainly if I die in a car accident, I want some cash on hand for my wife to have until she gets insurance money).

Also, my wife and I have stable jobs at this point, still saving a good chunk of money each month. We are both mid-50s hoping to retire in 5 years or so. But if a collapse happens, who knows whether we both keep our jobs.

Does any of that change your thinking at all? Thanks for your input. Appreciated. I hope some others will weigh in when they have time.
One of the things I like about tax-advantaged retirement accounts is the asset protection from creditors. 401K is covered by ERISA at the federal level. I believe a traditional IRA designated as "rollover" (as from a 401K rollover) is next best. Roth IRA varies by state, but generally has good protections as well. I do everything I can to fill retirement accounts, spending down taxable accounts as necessary.

I suppose physical gold paid for with cash, stored at home, and no other electronic record could remain "undiscoverable" from a lawsuit or bankruptcy. But I still wouldn't do what you propose as I value the tax advantages and asset protection of retirement accounts too highly to give up.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by snedgar » Fri Dec 23, 2022 9:02 pm

Hey Stuper1,

I think it's a pretty common situation that many of us have: being heavy on the tax advantaged accounts and light on after-tax funds.

On the other hand, funds in a Roth IRA are highly valuable.

When I found myself in a similar situation to yours, I took a middle path. That is, I still contribute enough to my 401k to claim the company matching funds, and would contribute to Roth if I could, but all funds beyond that go to after tax savings to build that up as much as possible.

I wish I had started this earlier, but for me it's working ok to balance things out without having to pull anything out of tax advantaged accounts.

Just a thought
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by flyingpylon » Sat Dec 24, 2022 7:23 am

snedgar wrote:
Fri Dec 23, 2022 9:02 pm
Hey Stuper1,

I think it's a pretty common situation that many of us have: being heavy on the tax advantaged accounts and light on after-tax funds.

On the other hand, funds in a Roth IRA are highly valuable.

When I found myself in a similar situation to yours, I took a middle path. That is, I still contribute enough to my 401k to claim the company matching funds, and would contribute to Roth if I could, but all funds beyond that go to after tax savings to build that up as much as possible.

I wish I had started this earlier, but for me it's working ok to balance things out without having to pull anything out of tax advantaged accounts.

Just a thought
I’m in the same boat. Having after-tax savings gives you a lot more flexibility to bridge the gap between an early retirement and Medicare, Social Security, etc. At some point you realize that maxing out your tax advantaged contributions isn’t going to make all that much difference and the trade off for more flexibility is worth it.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by welderwannabe » Sat Dec 24, 2022 8:03 am

Personally I wouldn't want to hold gold in a Roth. You'd be better off keeping stocks there, hold gold in a traditional tax advantaged account if you can.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by snedgar » Sat Dec 24, 2022 9:11 am

One other option that I forgot to mention is that Fidelity offers segregated allocated storage of Gold Eagles within both Roth and Traditional IRAs.

While it is not as efficient, we also use that as a tool to hold physical while not having to withdrawl from the IRAs.

As @flyingpylon mentions, earlier in this thread, there needs to be more discussion about the need to balance the types of accounts where we save/invest. You have to dig pretty deep, or experience it yourself before you even realize there was a problem.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by jhogue » Sat Dec 24, 2022 9:43 am

stuper1,
You pose an interesting question. I would not involuntarily surrender tax free space in our Roth IRAs if I could avoid it because:
1. Once that tax advantage is gone, you can never get it back.
2. I am pretty convinced that our taxes have nowhere to go but up. ( I could be wrong, but I doubt it.)

An alternative to consider:
For any any post-tax advantage money you have for your last five working years, put half toward physical gold and half toward I-bonds. Your physical gold holdings will expand without surrendering any tax advantaged space. When you retire in 5 years you can cash in the I-bonds and buy more physical gold; but you will also retain the options to either 1) use the proceeds to pay for your post-retirement expenses; or 2) simply let the I-bonds grow and defer taxes for up to 25 years.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by Kbg » Sat Dec 24, 2022 10:31 am

Stuper,

The politics board is fun to engage in and we have been foes there but for me I don’t take that stuff elsewhere on the board.

The great thing about finance is there is a perfectly rational answer that is math based if properly constructed.

As most replies touched upon and was in your opening post, the answer revolves around your tax advantaged account space. The “correct” answer is computational.

Current tax rate, future expected tax rate, tax rates associated with various asset classes, holding period, tax advantaged account type

Assumptions…expected returns, Congress doesn’t change the rules on us, withdrawal date(s)

For gold this can be simplified to a couple of elements. The 28% gold collectibles tax rate and which tax advantaged account type you are using. The standard answer is don’t put gold in a tax deferred account as holding gold and not selling it defers the tax the same as being in the account…but the tax rate will differ and that’s where you then have to assume rates of return and timing of withdrawals which can be boiled down to a single net present value (NPV) number. Take the largest NPV. You can Google how to do this in a spreadsheet and you can make all kinds of assumptions and chose the one you assume is most correct and then use the best NPV as a result.

That’s a lot. However, we can make some more assumptions that will simplify and are likely pretty safe ones.

Assume a bond and gold returns the same annual amount (short term NOT a good assumption, long term a very good assumption)

Put one one in a tax deferred account and put the other in taxable. Hold for 10 years and calculate taxes/final amounts. Switch and recalculate. My guess, and it is a guess without doing the actual math, is that you’ll find conventional wisdom holds…keep bonds in tax deferred as the tax hit against bond dividends/interest is a pretty substantial tax hit to compounding.

The above is why many people love Berkshire Hathaway. It returns pretty close to the S&P 500 and company policy is to never payout anything. All money invested is essentially another regular IRA.

The above is the “correct most rational” answer.

Based on what you said…you assumed Armageddon but were worried about having money for your wife if you get hit by a truck pending insurance receipt. IF 4% is enough and IF there is a reputable local gold dealer find out what their rate off spot is to buy and do the math. IF 2% minus the spread provides enough cash ( ~ 3.9X%) then Armageddon and death contingency problem solved and you don’t have to mess with your tax deferred space. Just make sure you ensure the Mrs knows how to check spot on the internet and where the gold and gold dealer are located.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by stuper1 » Sat Dec 24, 2022 12:49 pm

Thanks guys, you gave me a lot to chew on. I need some time to digest all this and do some figuring. Appreciate your help.

Kbg, I don't see you as a foe. I'm sure we are both fellow truth seekers. I'm sure in the end we both want the same thing, which is stable relations between countries and far fewer people dying in unnecessary wars. We may disagree somewhat on the means to achieve those ends, but there'd be nothing to discuss if we all thought the same. Thank you for your careful thoughts about my gold situation.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by welderwannabe » Sat Dec 24, 2022 2:31 pm

Kbg said it far better than I did with my single sentence reply.



I'd consider putting it in a non roth tax deferred account (like a traditional 401k), since youll be subject to regular income taxes on withdrawal anyways. Gold is taxed at up to 28%, so this could be close to your tax rate when you retire, and maybe your retirement marginal tax rate will be even less. In addition since tax deferred is subject to RMDs, having your lower growth assets, like gold, in there is another plus. You're RMDs will be less

ROTH I like to load up on stocks so it can be as fat as possible.

The bad thing and about gold is it doesnt throw off any income. That also makes it good for keeping outside of any tax advantaged account.

While it is taxed at 28%, and that hurts, its a lower growth asset and doesn't throw off dividends or interest. 28% is still lower than many marginal tax rates for people. Lord knows its lower than mine. I'd put bonds in a traditional 401k long before gold.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by stuper1 » Sat Dec 24, 2022 2:55 pm

Yes, I understand the idea of loading stocks up in Roth. The problem for people like me is that part of my Roth space is also my "emergency fund" space, so I keep some STT and gold in Roth as well to temper some of the volatility. That way if I have a big emergency, and stocks happen to be in the dumps at that time, I can use STT or gold to pay for my emergency.

So, for me, the question comes down to whether to take out some of that ETF gold in Roth and convert it to physical gold held in my SDB? I don't really see the downside, other than losing a little flexibility in my Roth space. However, I'm committed to keeping an allocation to gold, and my physical gold is what I think of as my "deep gold" which won't be used for rebalancing or any other purpose except in an unusual situation, such as a major financial crisis where stocks/bonds have gone way down and both me and my wife have lost our jobs, etc.

My fear is that in a major financial crisis, there may be significant tracking error in the ETF gold, where it isn't really reflecting the true price of gold that has gone way up. Does anyone else have that fear?
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by barrett » Sat Dec 24, 2022 5:31 pm

My take is don't surrender Roth space unless you really need to. As mentioned a couple of times upthread, you can't get that back when it's gone. I think that trumps anything else in your situation. So many people get to "retirement age" and regret that they don't have a higher percentage of their savings in Roth accounts. I am one of them which possibly skews my view somewhat.

Obviously I have no idea what your numbers are but my assumption is that you and your wife are comfortable but not so wealthy that you can just stop working now. Say, for example, you have $2,000,000 over all accounts. That's $80,000 in taxable. Is your emergency fund included in that 4%? In the event of job loss and a big unexpected expense or two, your taxable accounts can be severely reduced quite quickly.

Just a couple of cents worth (if that!).
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by Kbg » Sun Dec 25, 2022 10:00 pm

Apparently in the latest spending bill you can have $2500 as an emergency fund with a no penalty withdrawal ability.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by ochotona » Fri Dec 30, 2022 8:20 am

I have a large physical gold Roth IRA with Gold Star Trust Co., Canyon TX (a sub of Happy State Bank... A rated bank on deposit accounts).

GST is just the custodian. Once I had cash in the Roth over there, I was able to buy metal through my usual dealer, and GST was the party supplying the cash, then my dealer shipped to Delaware Depository, where the asset is held For Benefit Of "Me". Allocated storage not segregated.

Once you get past the point of "using up" the minimum annual fee, it's really quite cheap,about like ETF costs, but of course in a class by itself compared to ETF. You can get gold sent to you! You really need to think about like $75k or so to start with, otherwise there is too much fee drag. If you're way below $75k, I'd just accumulate in ETF until you get a big enough account then look into GST.

Cautions - it's not automated like Fidelity or Schwab. They will fee you to death on the way out, if you start pulling little increments of money out. My plan is to either keep it there until I'm dead, or take it all back at once to Fidelity or Schwab, pay the account termination fee, and call it a day.

Been there almost five years... no issues. Happy to be there.
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Re: Liquidate Some Roth Space to Buy Physical Gold?

Post by seajay » Sat Dec 31, 2022 5:53 am

The PP is potentially good for 'tax harvesting'

I don't know about US Roth/IRA ... whatever but consider a case of where ...

Capital gains on domestic gold coins are tax exempt, no different to if copper prices rose you don't pay capital gains tax on copper coins (not that really applies anymore as most coins are nowadays made from cheaper base metals).

Two savings options. 1) A 'pension' plan, where money-in isn't taxed (receives a tax credit), gains in the account are accumulated tax free, you pay taxes on withdrawals - but can only withdraw after a certain age (late 50's). 2) a 'savings' plan, where money-in has already been taxed, but gains in the account accumulate tax free, and no taxation on withdrawals - where there's a yearly limit as to how much can be added, and if you withdrawal you can't add that money back in again.

A couple of links, the first of which has limited historic data as 3x stock ETF's havn't been around that long, the second has a 2x stock that had data going back further

PV

PV

The main points of interest are when you click the 'Assets' option/tab, where it provides a indication of the yearly gains/losses in individual assets.

With diligence (you need to rebalance every 6 months when you hold 3x, for 2x yearly rebalancing tends to be frequent enough), asset allocation to different accounts can result in capital migration. Simpler to think it through for oneself that for me to describe in detail here, but as a guide consider if you were holding SPXL (3x long stock) in one account such as your Pension account and how at times that declined massively in value, in part (or maybe fully) offset by gains in another asset/account.

Conceptually 50/50 stock/gold is a form of barbell of two opposites

Image

somewhat similar to how a STT/LTT barbell combines to a central 10 year bullet. Leveraging up 50/50 does increase portfolio volatility, and might broadly yield no better overall reward.

Jf this all shoots over you head ... fuggedaboutit, as its basically just a tax harvesting/capital-migration-tendency type approach.
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