PP Allows Expansion Of Tax-Sheltered Space

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TripleB
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PP Allows Expansion Of Tax-Sheltered Space

Post by TripleB » Sat Aug 06, 2011 10:00 am

One benefit of the PP that I haven't heard discussed is the ability to expand tax-sheltered space through the inclusion of gold bullion. (It may have been discussed previously on this forum but if so, I missed it). Gold coins are inherently tax-sheltered because they don't spit off dividends.

In isolation, I believe gold is a poor investment. As part of the PP, I believe it's "safe" as part of the whole. Thus, my mindset is that using the PP allows an investor to safely use gold. Outside of the PP, gold is unsafe in my mind. Thus, by using the PP, it allows one to expand tax-sheltered space by a large margin of at least 25% of their portfolio size.

For example, suppose an investor has a sample $100k portfolio with $50k in taxable savings and $50k in IRA/401ks. By switching to the PP, they could put $25k of their taxable savings into gold coins and effectively expand their tax-shelter from $50k to $75k.

I see this as a huge advantage because I am tax-averse and in a high marginal tax rate.
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melveyr
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Re: PP Allows Expansion Of Tax-Sheltered Space

Post by melveyr » Sat Aug 06, 2011 1:44 pm

Definitely. I think a lot of the long-timers here do exactly what you are talking about.

When maxing out an IRA, I would do it in this order: Treasuries, stocks, cash, then gold.

Others may disagree on the first part of the order, but the consensus is that gold is by far the most tax efficient vehicle.
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smurff
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Re: PP Allows Expansion Of Tax-Sheltered Space

Post by smurff » Sat Aug 06, 2011 4:40 pm

Holding precious metals is tax efficient.  No dividends or interest accrues, so there are no taxes due.  And until (or unless) one sells the PM, and it has appreciated relative to when it was purchased, no taxes are due on it, under American tax laws.

So far this tax efficiency seems to be the case without regard to whether the gold and silver, for example, is held in physical form or in an ETF.  But there may be differences in the type of taxes due--capital gains vs. collectibles--when an ETF is sold.  As the federal gov. seeks out more sources of revenue, however, the differences between tax treatment of capital gains, collectibles, earnings, royalties/rents, dividends, interest, etc. may disappear.
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Re: PP Allows Expansion Of Tax-Sheltered Space

Post by dragoncar » Wed Aug 17, 2011 12:10 pm

What happens when you rebalance, selling gold at the collectible rate?  Does it make sense to hold at 20% (5/25) to 40% (10/25) of each asset in a tax-advantaged account, so that you can rebalance at least once without incurring tax liability?

I've been trying to find discussion of this with the search, but haven't seen much.
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smurff
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Re: PP Allows Expansion Of Tax-Sheltered Space

Post by smurff » Wed Aug 17, 2011 2:45 pm

Dragoncar, I am still in the accumulation phase of life, so I've been adding funds to the cheaper assets to rebalance my permanent portfolio, rather than selling winners and redistributing to laggards. Plus, all of my bonds and stocks are in IRAs, which means stock/bond sales are non-taxable events.

Since I have physical gold in both the permanent and variable portfolios, I've been toying with the idea of having my variable portfolio use its cash to buy excess gold from the permanent portfolio.  That way the gold only changes hands on my own books, and there's no taxable event.  That new cash in the PP can then be used to rebalance.  I haven't had to do this yet.

If I held gold as an ETF, I'd probably do it through an IRA or similar tax-advantaged account.
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Re: PP Allows Expansion Of Tax-Sheltered Space

Post by TripleB » Wed Aug 17, 2011 7:00 pm

I am an advocate of the idea of having 20% of each asset class (5% of portfolio total per asset) within tax-shelters to allow rebalancing without a taxable event. We can create a decision model that shows whether it's more tax efficient to be slightly less tax efficient in placement, in order to allow rebalancing without taxable events. The sensitivity analysis being how often one rebalance and what your marginal tax rate is.
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