Holding gold in retirement accounts

Discussion of the Gold portion of the Permanent Portfolio

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sophie
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Holding gold in retirement accounts

Post by sophie » 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.
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Re: Holding gold in retirement accounts

Post by barrett » Mon May 29, 2017 9:15 pm

I am posting mostly to follow but I keep thinking that Desert's 10% allocation to gold sure makes a lot of PP logistics simpler. At a 25% allocation, what makes the most sense for me is to have a mix of 10/40/40/10 (cash/stocks/LTTs/gold) in IRA's and the reverse in taxable accounts. That would be 40/10/10/40 (cash/stocks/LTTs/gold) in taxable. It just looks like I'll bet hitting retirement with roughly the same amount in taxable and IRAs.

The thing is that I'd like for my returns in all accounts to be more or less the same so that I am only really dealing with tax efficiency issues during the withdrawal phase.

So, while I don't like gold ETFs either, I find holding a 10% ETF stake in a retirement account to be palatable. Buying physical gold and having it stored via someone else in another country would give me the willies. I want to be able to visit my coins!

There's a bit of overlap with this thread and the GB one going on in the Variable Portfolio question.
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Re: Holding gold in retirement accounts

Post by sophie » Mon May 29, 2017 10:14 pm

Thanks, Barrett.

I think you may have misunderstood my post though. It's not about how much gold to hold, it's how to hold it in different venues. When it comes to gold, the limitations of tax-advantaged accounts are a real PITA.

It would also be more than a bit irritating if those limitations are causing you (or other people) to switch to a different portfolio, absent other reasons for doing so. Kudos to Fidelity for providing what looks to be a very nice ETF alternative.
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Re: Holding gold in retirement accounts

Post by dualstow » Tue May 30, 2017 8:57 am

sophie wrote: When it comes to gold, the limitations of tax-advantaged accounts are a real PITA.
Indeed. The fact that Fidelity even offers this suggests that there is demand, and so what if the demand comes from those William Devane gold ads run during reruns of 'Diagnosis Murder'. ;-)
I wonder why federal laws even impose these restrictions.

On top of that, the page you linked says,
Precious metals are generally not eligible to be held in other retirement accounts at Fidelity.
I have a 401(k) there but my IRAs are elsewhere so I guess I can't take advantage.

I wish I could help. Most of what I have is in taxable. All assets. So, I'm in a different situation. I thought you were going with taxable and Perth Mint?
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sophie
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Re: Holding gold in retirement accounts

Post by sophie » Tue May 30, 2017 9:31 am

I wish I could put 75% of my gold in taxable, but that would unbalance taxable/tax-advantaged quite a bit - I'd have all cash and gold, and almost no stocks/bonds. It doesn't make sense to put anything less than the maximum into tax-advantaged accounts for this stupid reason alone.

Correct, you can't hold precious metals in a 401K, only in an IRA of some flavor (including SEP IRA). It doesn't sound like you have my problem though, if most of your holdings are in taxable. Still, if your plans ever include opening a Roth IRA at Fidelity, you could always put gold into that.
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Re: Holding gold in retirement accounts

Post by dualstow » Tue May 30, 2017 10:28 am

I have a Roth at Vanguard, and a Traditional IRA there, too. Long story, and I'll spare you, but I'm going to stick with building up the Roth. Don't want too many small accounts, and I mostly trade free in Vanguard.

FWIW, I think Barrett understood your post. I think where to hold gold and how much you have to hold/ want to hold are inextricably linked.

I suppose gold ETFs weren't so much of a problem when everyone was talking about rebalancing out of them. :-) Put in a little in an IRA, watch it grow, sell, no problem. I missed most of that, having started around 2010. Now that gold isn't doing so well, they're under more scrutiny, and justifiably so.

My main struggle is whether to make the pp a larger part of my total, which effectively means a bet on gold, buying more gold. What if I load up the truck and gold doesn't come back in my lifetime? What if I don't load up, and merely break even when gold soars once again?

If most of your invested capital is in tax-advantaged, I envy you. It seems like you're going to be stuck with ETFs, though, for the most part.
ETFs plus this new Fidelity plan. If you do trade coins at Fidelity, please do let us know how it goes.
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Re: Holding gold in retirement accounts

Post by Tyler » Tue May 30, 2017 12:15 pm

Awesome -- thanks for the info, Sophie! I wasn't aware that Fidelity offered such an option, and the prices are indeed pretty competitive.

I'm personally not so paranoid about ETFs, but it's always good to learn about other options.
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Re: Holding gold in retirement accounts

Post by JohnnyFactor » Wed May 31, 2017 3:11 pm

Hey sophie, just a heads up on this relevant piece from craigs book, chapter 9. You may want to ask them to clarify this further.

"Storing Gold in an IRA
The IRS says that American Eagle gold coins can be put into an IRA. This is probably not a good idea for two reasons:
1. Gold has no interest or dividends to shelter so you're consuming valuable tax-deferred space that is better used for bonds, cash, and stocks.
2. You can't get to your gold quickly if you should find you need it. The IRA custodian will store it with all the inherent risks in doing so.
Gold is the last asset an investor should put into a retirement account. Fill these accounts first with stocks, bonds, and some cash. Even if there were space still available, an investor would be wise to not keep all their gold in the IRA space just in case."
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sophie
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Re: Holding gold in retirement accounts

Post by sophie » Thu Jun 01, 2017 7:26 am

I think all of us would agree that gold is the last thing you want to put into retirement. This thread is about what to do if you have to put some gold into retirement accounts, because your taxable assets are dwarfed by tax-advantaged. This is unfortunately the case for many of us.
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bitcoininthevp
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Re: Holding gold in retirement accounts

Post by bitcoininthevp » Thu Jun 01, 2017 10:35 am

I can see the appeal of ETFs/Someone else holding a PERCENTAGE your gold for the ease of selling when gold hits the higher rebalance bound.

However, why not hold physical for the majority?
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Re: Holding gold in retirement accounts

Post by dualstow » Thu Jun 01, 2017 2:35 pm

Kind of a high-class problem, though, Sophie. The only reason my taxable dwarfs my tax-advantaged is because I started a Roth IRA late in life, and my accountant talked me out of throwing so much into a solo 401(k). (Low tax bracket). I would gladly switch places with you.
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Re: Holding gold in retirement accounts

Post by ochotona » Thu Jun 01, 2017 8:53 pm

Sophie, are you maybe at the point where you should slow or even stop the growth of your tax-deferred space? There is a possibility that it could grow too big. By that I mean, when you have to take the Required Minimum Distributions, you might progressively get bumped to higher and higher tax brackets as you are forced to take out more and more as you age. Look at an RMD table sometime to see what I mean. I'm facing a similar situation. In 2018 I think I'm going to go to some combination of Roth 401(k) and converting my IRA paper gold to metal with regular after-tax savings.
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