Holding gold in retirement accounts

Discussion of the Gold portion of the Permanent Portfolio

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dualstow
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Re: Holding gold in retirement accounts

Post by dualstow » Thu Jun 01, 2017 9:07 pm

If it's not a Roth, there is such a thing as having too much in non-taxable.
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Re: Holding gold in retirement accounts

Post by ochotona » Thu Jun 01, 2017 9:20 pm

dualstow wrote:If it's not a Roth, there is such a thing as having too much in non-taxable.
Now, it does all depend on what amounts you have saved by the time you hit the RMD age, but if you're projected to be quite affluent you really don't want to kick this can down the road. You want to plan for the tax implications distribution phase even as you busily squirrel it away today.

Also, as bad as the Federal debt is, in the future tax rates could be YUUUGE. The government might be in an existential struggle to pay the interest on the debt. Tax rates are low now, and if Trump succeeds, that could be even lower... but they won't stay low forever.

Pre-pay the taxes now, by buying gold with after-tax money, and stay out of that mess.
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Re: Holding gold in retirement accounts

Post by sophie » Fri Jun 02, 2017 7:11 am

ochotona wrote:
dualstow wrote:If it's not a Roth, there is such a thing as having too much in non-taxable.
Now, it does all depend on what amounts you have saved by the time you hit the RMD age, but if you're projected to be quite affluent you really don't want to kick this can down the road. You want to plan for the tax implications distribution phase even as you busily squirrel it away today.

Also, as bad as the Federal debt is, in the future tax rates could be YUUUGE. The government might be in an existential struggle to pay the interest on the debt. Tax rates are low now, and if Trump succeeds, that could be even lower... but they won't stay low forever.

Pre-pay the taxes now, by buying gold with after-tax money, and stay out of that mess.
Ochotona this is a really important question and it's come up in other threads too. Well ok, high tax brackets are worth being in :-) but mine is a total of 40% thanks to NYC and NY state tax. I guess that doesn't matter if I stay here, because I'll be paying those local taxes after retirement anyway, and it's a good bet they'll go up due to the demographic trends of pension & Medicaid recipients.

The problem is that the benefits of tax deferral are hard to beat even if future taxes go up. I ran some spreadsheet calculations for an earlier thread hoping to disprove this, i.e. to give myself an excuse to short my retirement savings accounts, and even at modest gains and relatively short time horizons tax deferral won every time.

Because I came fairly late to the high tax bracket game, the RMDs aren't going to be quite as bad as you might think. And if they're that high, this is again a pretty nice problem to have.

Are most of you shorting retirement contributions in order to buy gold? I'm curious to know.
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Re: Holding gold in retirement accounts

Post by dualstow » Fri Jun 02, 2017 7:18 am

Re: your last line- not at all. I max out my Roth, and while I no longer contribute to my 401k, it's unrelated to gold.

Straying a bit: At least your treasuries are safe from NY tax. Do any local taxes apply?
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Re: Holding gold in retirement accounts

Post by sophie » Fri Jun 02, 2017 7:29 am

Local taxes are exempt too. It's why I should be buying short T bills right now, instead of parking money in an online savings account.

Low income sure makes things simpler, but I believe you're in a lower cost living area than I am....plus, if you are self-employed you get to do all kinds of tricks to lower your AGI. I hope that's why you're in such a low tax bracket?
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Re: Holding gold in retirement accounts

Post by dualstow » Fri Jun 02, 2017 7:40 am

I have the savings of someone with high income, and the income of someone with no savings. ;-) My accountant sharpens his pencil on a few things, but in general we're just not huge earners in this household.
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Re: Holding gold in retirement accounts

Post by sophie » Fri Jun 02, 2017 7:49 am

Meaning you are a wise person, which indeed you are. Congrats on the high savings, it really is an accomplishment.
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Re: Holding gold in retirement accounts

Post by dualstow » Fri Jun 02, 2017 8:14 am

Hah, thanks. I get way more praise from you than I deserve, but I'm not saying stop, either. (afrosmiley)
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Re: Holding gold in retirement accounts

Post by ochotona » Fri Jun 02, 2017 11:03 am

I have a pot of money which I set aside for retirement with each paycheck, and I have the flexibility (the curse?) to allocate it between Regular 401(k), Roth 401(k), HSA, and after-tax.

I max out the HSA, that's a no-brainer. It's the best thing since dim sum.

I have been maxing the Traditional 401(k) to get the most tax avoidance today, because I not only want to save for retirement, but to economize on today's taxes and save as after-tax much cash as possible, because my industry is still unstable and I could have to eat my cash pile.

As things get better at work, and they are slowly, very slowly, I will be wanting to "tax diversify" my 401(k), and I'll turn to Roth 401(k). Maybe in 2018.

I also want to convert gold ETF in the IRA to after-tax metal, that could be a 1-5 year project, depending on how fast I want to buy. But I bought the ETF at $1250 or so, so if gold runs up much higher, I sort of don't care.

So I have a few cross-currents and projects that conflict with each other. The usual!
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Re: Holding gold in retirement accounts

Post by DragonJoey3 » Fri Jun 02, 2017 2:36 pm

Sophie,

I too feel your pain. I have been wanting to buy physical gold for a while now but all my investments just barely fill the large amount the gov allows me to defer ($18,000 in 401k, $11,000 in roth IRA's, $6,750 in HSA, etc...) All told I need to invest over $35,000 and possibly more than $40,000 in a year to have anything left for taxable investments (definitely a first-world problem). That being said I have considered not maxing some-thing tax-deferred in order to have the protection of physical gold holdings.

The largest concern would be hyper-inflation (which I think is a likely scenario, but that's just my paranoia ;) ) In that case, if gold goes to say $5,000/oz or $10,000/oz I suspect the tracking error would become quite substantial and some ETF's might even collapse.

I don't have a good answer for you, but wanted to let you know that I too occasionally worry about how much of my gold is "just paper"

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Re: Holding gold in retirement accounts

Post by Hal » Fri Jun 02, 2017 10:00 pm

ochotona wrote:
dualstow wrote:If it's not a Roth, there is such a thing as having too much in non-taxable.
Now, it does all depend on what amounts you have saved by the time you hit the RMD age, but if you're projected to be quite affluent you really don't want to kick this can down the road. You want to plan for the tax implications distribution phase even as you busily squirrel it away today.

Also, as bad as the Federal debt is, in the future tax rates could be YUUUGE. The government might be in an existential struggle to pay the interest on the debt. Tax rates are low now, and if Trump succeeds, that could be even lower... but they won't stay low forever.

Pre-pay the taxes now, by buying gold with after-tax money, and stay out of that mess.
And remember the Government can always change the rules!

Have a look at the link to a 2010 document for some chilling bed time reading....

http://www.aph.gov.au/binaries/library/ ... uation.pdf
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Re: Holding gold in retirement accounts

Post by sophie » Fri Jun 02, 2017 11:28 pm

Thanks DragonJoey. That's exactly the problem!

And btw all - it's not that I'm in a "high tax bracket", unless that means "over 15%". It's high because of state/local tax. If I were in a Trump-level tax bracket, I wouldn't have the limited taxable savings issue in the first place. Or, I suppose, if I weren't living in a place where property tax on a 1 bedroom apartment is $6K, electricity prices are > 3X the national average, and grocery costs are through the roof. (On the other hand, my transportation costs are mostly limited to resoling my shoes every year.)

So how much is the protection of physical gold worth paying in up front vs. deferred taxes? Dang, that is a tough one.
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Re: Holding gold in retirement accounts

Post by dualstow » Sat Jun 03, 2017 10:56 am

sophie wrote:And btw all - it's not that I'm in a "high tax bracket", unless that means "over 15%". It's high because of state/local tax.
That clears things up a little bit.
My accountant's argument was, why throw so much money into a 401k where withdrawals will be taxed as ordinary income, and where you might very well be in a higher tax bracket than you are now? Capital gains from (long-term) stock sales in taxable: not taxed as ordinary income. My situation and not yours, of course. But, makes sense to me. I just wish more could be put into a Roth IRA each year.
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Re: Holding gold in retirement accounts

Post by sophie » Sat Jun 03, 2017 12:38 pm

Let's think about this a second. The state/local taxes won't change regardless of what happens to my income, unless I move. I don't know if that will happen, so I will assume not.

I think your accountant is oversimplifying a bit, but in the 15% bracket you're not much worse off forgoing tax deferral. Let's run a quick example scenario.

Let's say you start with $1,000. If you put it into a 401K growing at 5%/year, it will grow to $1628 after 10 years. If you then withdraw it and pay 15% taxes on it, you'll be left with $1,384.

If you pay the taxes on that $1,000 up front, you're left with $850 to invest. After 10 years, it will grow to $1,384. But, you'll have to pay taxes on interest or ordinary dividends. Let's say that's 25% of the gains, i.e. $534. So after tax you're left with $1304.

Note however that the difference in reality will be greater than this. 15% is your MARGINAL tax rate, i.e. what you save with tax deferral since the deferred amount comes off the top. When you go to withdraw, even if you're in the same bracket it's unlikely that you'll pay that rate on the entire amount. Thus, you tax bill at the end will be less than what I've calculated in this scenario. On the other hand, you might be able to take advantage of tax-loss harvesting to reduce taxes on your regular income, which could make up the difference.

So in your shoes (15% bracket) I'd also forgo the tax deferral, religiously tax-loss harvest, use Roth space for non-stock assets, and be happy about the simplification. Once you go up to 25%, though, the differences increase. I'll have to play around with spreadsheets a bit more, to see if there's a time horizon where it makes sense to stop contributing to tax-deferred accounts - that would be nice actually!
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Re: Holding gold in retirement accounts

Post by dualstow » Sat Jun 03, 2017 12:52 pm

Something to think about, for sure. I have to take off for a bit, but I will review this in the evening.

NYC taxes, ouch.

Would you believe I fell into the 10% bracket last time around. I had a lot of non-taxable income. No, no Heisenberg activity. O0
Sometimes I'm in the 10% bracket. Wife's income is sporadic, but always low.

I'll have to look more into the 401k stuff. In the past, my main argument was that I could trade with impunity, even short term. These days I don't do much of that, so it doesn't matter. Also, the business tax has gone down here. I probably get hit more by school tax than anything else, and I'm happy to pay it. I just hope they spend it wisely. (Yeah, I know. Fat chance. But I'm happy to pay it).

Maybe you should look into an NY muni fund for your vp? Do you have a vp?
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Re: Holding gold in retirement accounts

Post by barrett » Sat Jun 03, 2017 12:53 pm

Not trying to complicate things further but one also has to consider how Social Security changes the tax picture once that income stream starts. In our position (me age 58, wife age 50) we are desperately trying to shove as much as possible into Roths each year. The plan is not to touch any of those until I am 70.5 but we are still behind the curve.
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Re: Holding gold in retirement accounts

Post by DragonJoey3 » Sat Jun 03, 2017 8:40 pm

So this thread spurred me to talk to the wife about getting some physical gold and what we decided was we would purchase some from our cash emergency fund and use the Roth's as a form of emergency fund.

I'm fortunate to make enough that the situation will not be permanent (i.e. able to put over $40k in savings per year) but I think if I were not I might still consider holding a small portion of my portfolio taxable and give up the tax deferment for the security of physical bullion.

Look at it from this perspective, you have $3900 to invest after maxing your 401k for a year. You can either place it in your Roth IRA and use it to buy a good ETF (IAU/Gld, etc...) or you can buy bullion. True when you sell that ETF there are no taxes on it, but there is an expense ratio you pay every year you don't sell. If you already own a substantial amount of gold ETFs then holding some physical bullion you are very unlikely to ever sell makes sense. In the case of the $3900 you get say 3 coins, if you sell in the future you had to pay 28% collectable tax on the gains. vs 0.18% per year. This means this gold will be the last gold ever sold from your portfolio, but to me still worth giving up tax deferred room to have the security.

My wife agrees so we will buy gold now and Max the Roth's sometime next year before the April deadline.

Apologies for typos, this was written on my phone.

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Re: Holding gold in retirement accounts

Post by dualstow » Sat Jun 03, 2017 9:16 pm

I agree with Joey. As much as possible, buy coins but sell ETFs.
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Re: Holding gold in retirement accounts

Post by ochotona » Sat Jun 03, 2017 10:14 pm

Oh yes you have to pay the Collectibles Tax on gold ETF sales!
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Re: Holding gold in retirement accounts

Post by sophie » Sun Jun 04, 2017 8:15 am

Not if they're in a retirement account. I don't hold ETFs in taxable. What's the point? Buy physical or something like Perth Mint instead.

DragonJoey, congrats on the decision, and it sounds like a good plan. I realized I have another alternative: right now I have an automated monthly contribution to each of the 4 assets in taxable. I can stop the cash contribution and redirect it to gold, then make up the missing cash with the annual Roth contribution combined with ETF sales, if needed.

Dualstow - I'd looked into a NY muni fund, but the yield is lower than the PP's has been even after taking taxes into account, so I didn't see the point. It would make more sense to buy the bonds directly. I'll have a think about that!
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Re: Holding gold in retirement accounts

Post by barrett » Sun Jun 04, 2017 8:28 am

Thread is going in several directions at once so I will add to the mayhem. Two other things I wanted to mention about the Roth vs. tIRA/401(k) discussion, Sophie and Dualstow. I am self-employed and have to pay quarterly tax. If I look at my numbers before figuring out my retirement account contributions, I might owe, say, $4,000 in taxes. If I contribute X amount to my solo 401(k), taxes owed might come down to $2,000. So that means that I owe the government $2,000 less right now and $500 less per quarter next year. That alone sways me toward the solo 401(k) because who doesn't want the extra four grand?

ALSO, with the ACA I have been incentivized the last two or three years to have my AGI come in at a certain sweet spot for the ACA subsidy. That has meant contributing enough to the solo 401(k) to reach the sweet spot and then throwing the rest of my potential contribution into my Roth.

I don't even bother with the math because it's over my head but I'm pretty sure I am doing things correctly.
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Re: Holding gold in retirement accounts

Post by Libertarian666 » Mon Jun 05, 2017 8:12 pm

Of course no one knows what is going to happen to tax rates in the future. However, I believe it is certainly possible to have so much in tax-deferred accounts that you get clobbered by RMD's.

On the other hand, I may have found a way to get around that problem. Anyone who is interested should message me privately, because I haven't gotten it cleared by my tax guy yet.
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Re: Holding gold in retirement accounts

Post by sophie » Tue Jun 06, 2017 7:22 am

barrett wrote:ALSO, with the ACA I have been incentivized the last two or three years to have my AGI come in at a certain sweet spot for the ACA subsidy. That has meant contributing enough to the solo 401(k) to reach the sweet spot and then throwing the rest of my potential contribution into my Roth.
Excellent point. That is a pretty big return on investment, albeit one-time. Add that to the calculations, and tax deferral would win big time.
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Re: Holding gold in retirement accounts

Post by vnatale » Fri Jan 03, 2020 9:18 pm

sophie wrote:
Mon May 29, 2017 5:02 pm
As dualstow observed, there's been quite a few discussions of gold recently. This question hasn't come up recently though, and I can't even remember any old threads about it.

Like everyone else, I hold a lot of gold ETF shares because there aren't a lot of options in tax-advantaged accounts, but I'm increasingly nervous about it. These funds often trade differently from gold price, and the discrepancy can be substantial. The recent takeover of GTU and the problems at some funds during the 2013 drawdown makes it clear that there's more to the value of ETF shares than gold price. Since gold is meant in part as protection for extreme situations, I'm not sure I want to be testing those waters further with ETFs. Gold is the one place in the portfolio where you really want to be ultra-conservative.

Putting all the gold into taxable, where there are much better options, would be great, but the math doesn't work out for me. I'm happy for cash and gold to dominate in taxable, but I don't want things to be too out of whack.

An option for retirement accounts that I'm considering as an ETF alternative is buying gold coins within an IRA. In most cases you'd have to open a special account and deal with astronomical fees, but Fidelity has recently made this a viable option, with fees not much higher than an ETF. The coins are kept in unallocated storage at the Bank of Nova Scotia. There is still some manager risk (i.e. you have to trust Fidelity and its partner bank), but there are fewer layers to worry about. I'd posted about this before but as kind of a side issue. Here's Fidelity's info page on its gold bullion program:

https://www.fidelity.com/trading/invest ... r-platinum

In a nutshell: buying + selling fees on amounts between $5,000 and 50,000 total 4.5%, and for transactions over $50,000 it's 2.98%. Annual storage costs are 0.5% (billed quarterly and you can pay from another account). These were lowered recently from 2-3% the last time I'd checked. In comparison, the bid-ask spread at Colorado Gold is 3.5%, IAU's ER is 0.25%, and GLD's ER is 0.4%.

Everbank has a similar program, but the fees are much higher than Fidelity's. Ditto for specialist precious metal IRAs. Frankly I'm amazed that Fidelity has been able to offer the program at these prices. It's almost too good to be true.

I was thinking I'd like to leave something like 20% of my gold allocation in ETFs, for ease of rebalancing, and put the rest into the Fidelity precious metals program as "deep" gold. Buying amounts >$50K would be worth it to minimize transaction costs.
Sophie

Read through all the posts in this topic and did not find a concluding one from you as to what you ultimately decided to do.

Are you doing this with Fidelity?

If I am going to buy gold in tax advantaged accounts this is something I should be considering.

Therefore, quite interested in any updates from you (or, anyone else).

Thanks

Vinny
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Re: Holding gold in retirement accounts

Post by vnatale » Fri Jan 03, 2020 9:31 pm

sophie wrote:
Sun Jun 04, 2017 8:15 am
Not if they're in a retirement account. I don't hold ETFs in taxable. What's the point? Buy physical or something like Perth Mint instead.

DragonJoey, congrats on the decision, and it sounds like a good plan. I realized I have another alternative: right now I have an automated monthly contribution to each of the 4 assets in taxable. I can stop the cash contribution and redirect it to gold, then make up the missing cash with the annual Roth contribution combined with ETF sales, if needed.
Sophie,

As I'm rereading the relevant posts in this topic it appears that this could have been your chosen solution?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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