Gold in IRA avoids capital gains tax?

[crowbath]

The PP Book advises against putting gold into an IRA because, since gold generates no income you would be wasting the IRA's tax advantages. But how about the capital gains tax when gold is sold? Wouldn't you be protected from that, and isn't that an important consideration?

[rickb]

The PP Book advises against putting gold into an IRA because, since gold generates no income you would be wasting the IRA's tax advantages. But how about the capital gains tax when gold is sold? Wouldn't you be protected from that, and isn't that an important consideration?

If you're talking about a Roth IRA, then yes holding gold in this form eliminates the capital gains (actually, collectibles) tax that you'd pay if you held it in a taxable account.  In a non-Roth IRA, you end up paying regular income tax on what you withdraw which would be pretty much a wash compared to the collectibles tax.  I can't think of any reason to hold gold in a non-Roth IRA (perhaps rebalancing convenience).  In a Roth IRA there's a tax advantage, but the tradeoff is the gold cannot be easily accessed in various SHTF scenarios. 

[Xan]

The PP Book advises against putting gold into an IRA because, since gold generates no income you would be wasting the IRA's tax advantages. But how about the capital gains tax when gold is sold? Wouldn't you be protected from that, and isn't that an important consideration?

If you're talking about a Roth IRA, then yes holding gold in this form eliminates the capital gains (actually, collectibles) tax that you'd pay if you held it in a taxable account.  In a non-Roth IRA, you end up paying regular income tax on what you withdraw which would be pretty much a wash compared to the collectibles tax.  I can't think of any reason to hold gold in a non-Roth IRA (perhaps rebalancing convenience).  In a Roth IRA there's a tax advantage, but the tradeoff is the gold cannot be easily accessed in various SHTF scenarios.

I'm not sure the math adds up here.  Whether you pay taxes on the earned income now or later (Roth vs traditional IRA), the overall amount lost to taxes is the same, assuming your tax rate is the same.  Roth vs non-Roth is a bet on what your future marginal tax rates will be: if the tax rates are higher in the future than at the time of contribution, Roth is better, otherwise traditional is better.

[rickb]

The PP Book advises against putting gold into an IRA because, since gold generates no income you would be wasting the IRA's tax advantages. But how about the capital gains tax when gold is sold? Wouldn't you be protected from that, and isn't that an important consideration?

If you're talking about a Roth IRA, then yes holding gold in this form eliminates the capital gains (actually, collectibles) tax that you'd pay if you held it in a taxable account.  In a non-Roth IRA, you end up paying regular income tax on what you withdraw which would be pretty much a wash compared to the collectibles tax.  I can't think of any reason to hold gold in a non-Roth IRA (perhaps rebalancing convenience).  In a Roth IRA there's a tax advantage, but the tradeoff is the gold cannot be easily accessed in various SHTF scenarios.

I'm not sure the math adds up here.  Whether you pay taxes on the earned income now or later (Roth vs traditional IRA), the overall amount lost to taxes is the same, assuming your tax rate is the same.  Roth vs non-Roth is a bet on what your future marginal tax rates will be: if the tax rates are higher in the future than at the time of contribution, Roth is better, otherwise traditional is better.

I agree if you're comparing an amount of gold in a taxable account with an equivalent post-tax amount of gold in a Roth.  For example, if you have $X in gold and pay 28% tax on it now to get it in a Roth, you have $0.72*X of gold.  If gold goes up 1000% over the next N years this amount in the Roth will be worth $7.2*X.  If you didn't put it in the Roth to begin with, your entire $X increases - and will be worth $10*X - but if you sell it you'll have to pay the tax and you'll end up with $7.2*X (if the collectibles rate is still the same).  Note that this equation works out differently (better for the Roth) if the Roth investment is generating income/dividends.

On the other hand, I suspect most people don't actually look at it that way, but instead compare $X in gold in a Roth to $X in gold not in a Roth even though looking at it this way is not really an apples to apples comparison.

I think we've touched on this before, but do folks attach a different valuation to assets in IRAs (Roth or not) for rebalancing purposes?  In particular, if your assets are spread across taxable and Roth accounts by asset type it seems like your effective allocation percentages are not what you may think they are.

[Xan]

I think we've touched on this before, but do folks attach a different valuation to assets in IRAs (Roth or not) for rebalancing purposes?  In particular, if your assets are spread across taxable and Roth accounts by asset type it seems like your effective allocation percentages are not what you may think they are.

I have separate PPs in each of my three differently-taxed vehicles (Roth, traditional, taxable), in large part for this reason.

[crowbath]

Thanks to all of you for the discussion. It gives me some things to consider.