Holding gold in retirement accounts

Discussion of the Gold portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
sophie
Executive Member
Executive Member
Posts: 3317
Joined: Mon Apr 23, 2012 7:15 pm

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.
User avatar
dualstow
Executive Member
Executive Member
Posts: 9702
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

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.
Boris Johnson is in an ICU now. Still conscious.
RIP Al Kaline, aka Mr Tiger and Pussy Galore (Honor Blackman)
User avatar
sophie
Executive Member
Executive Member
Posts: 3317
Joined: Mon Apr 23, 2012 7:15 pm

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!
User avatar
dualstow
Executive Member
Executive Member
Posts: 9702
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

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?
Boris Johnson is in an ICU now. Still conscious.
RIP Al Kaline, aka Mr Tiger and Pussy Galore (Honor Blackman)
barrett
Executive Member
Executive Member
Posts: 1515
Joined: Sat Jan 04, 2014 2:54 pm

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.
DragonJoey3
Full Member
Full Member
Posts: 55
Joined: Wed Dec 05, 2012 3:00 pm

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.

-DragonJoey3
User avatar
dualstow
Executive Member
Executive Member
Posts: 9702
Joined: Wed Oct 27, 2010 10:18 am
Location: next to emotional support peacock
Contact:

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.
Boris Johnson is in an ICU now. Still conscious.
RIP Al Kaline, aka Mr Tiger and Pussy Galore (Honor Blackman)
User avatar
ochotona
Executive Member
Executive Member
Posts: 3033
Joined: Fri Jan 30, 2015 5:54 am

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!
User avatar
sophie
Executive Member
Executive Member
Posts: 3317
Joined: Mon Apr 23, 2012 7:15 pm

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!
barrett
Executive Member
Executive Member
Posts: 1515
Joined: Sat Jan 04, 2014 2:54 pm

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.
User avatar
technovelist
Executive Member
Executive Member
Posts: 5370
Joined: Wed Sep 15, 2010 11:20 pm

Re: Holding gold in retirement accounts

Post by technovelist » 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.
User avatar
sophie
Executive Member
Executive Member
Posts: 3317
Joined: Mon Apr 23, 2012 7:15 pm

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.
Post Reply