Which PP segments suitable for IRAs?

[goodasgold]

Hello all. I am a newbie.

Which of the four segments of the PP are suited to IRAs, either traditional or Roth? I suppose I-bonds are good for cash, and stocks are suitable for taxable accounts.

That leaves bonds & gold. Is a traditional or Roth IRA good for these two kinds of accounts? For example, a Roth IRA in GLD or IAU would do an end run around that ugly 28% tax on collectibles. 

Or am I wrong?

Thanks,

Goodasgold

[Greg]

Welcome goodasgold to the forum. This is a pretty standard question we hear here. There are others on this forum that can provide better examples but here's a quick search using the search bar and "tax-deferred"

http://gyroscopicinvesting.com/forum/ht ... p=238#p238

That being said, 28% on collectibles is the MAX value. If you income bracket is 25%, then you pay 25%. If your max income is 31%, your collectibles is 28%.

Enjoy reading. I've spent many an hours/days on this website learning and contributing. Good luck.

[smurff]

If an investment will yield dividends, bond coupon payments, or other taxable events independent of your taking any action, then it is a good candidate for an IRA, since then these events won't be taxable within the IRA  account.

So stock and long term treasuries are good for IRAs.

Some people use their PP cash as part of their emergency fund, and for this it has to be accessible without penalty.  So they leave all or a portion of their cash outside retirement accounts.

It is possible to keep certain types of bullion gold coins in a self-directed custodial IRA account.  The problem with that is it puts a custodian between you and your money, with all the dangers that can entail.  You won't have direct access to your gold and in a SHTF scenario you do not want to be in the situation of begging your custodian to check and recheck their records because your gold stash seems to have disappeared from their custody.  Like cash, gold has an emergency use so it needs to be where you have control over it (you have the key to the vault, or it is stored with a reliable overseas gold bank that will allow immediate access).  So except for a minor amount of a trusted precious metals ETF for rebalancing, gold is best kept out of IRAs.

Besides, the custodial fees for gold bullion coins held in IRAs can be very high compared to just putting it in a safe deposit box and insuring your coins.  Also, the annual contribution limit is low for most IRAs, hence you don't want to take up tax-deferred space within them using unsuitable investments.

[Greg]

The only reason why you might own gold in tax-deferred space is you want to have multiple Permanent Portfolios. You might have a PP that is in all taxable accounts and one that is all in non-taxable/tax-deferred accounts. That way you can rebalance in the tax-deferred so you can let the taxable grow longer without needing to fiddle with it and paying taxes on the fiddling.

I believe PointedStick should have some good pointers about this (no pun intended).

[smurff]

Great point about the multiple PP accounts.  No pun intended.  PointedStick, your ears must be on fire.

[Pointedstick]

Anyway… 

What I started out doing was creating a mini-PP in each account, on the theory that it would ease rebalancing. Consider the following situation: you have 50k treasury bonds in your 401k and 30k stocks in your Roth IRA. How do you rebalance? You can only contribute $5,500 to your IRA each year, and you can't easily remove money from the 401k!

Making each account its own mini-PP solved this problem, but it also introduced some extra complexity that irks the part of me that yearns for elegance and simplicity. The gold funds in particular are annoying since each transaction has fees, and by holding three gold funds, I've tripled the number of fees I pay. 

I still haven't found an ideal solution to this problem.

[rocketdog]

I have the same problem: a 401K, a Rollover IRA, and a Roth IRA.  My wife has the same 3 accounts as well.  I originally tried tracking all 6 in a spreadsheet as a single master account so that I knew the overall proportions, but the rebalancing challenges proved too much for me so I resigned myself to treat each of the 6 accounts as if it were its own independent portfolio (which they technically are). 

Still not perfect (especially since I can't invest in gold in the 401Ks), but it's much easier to see when things need rebalancing.

[HB Reader]

I have the same problem: a 401K, a Rollover IRA, and a Roth IRA.  My wife has the same 3 accounts as well.  I originally tried tracking all 6 in a spreadsheet as a single master account so that I knew the overall proportions, but the rebalancing challenges proved too much for me so I resigned myself to treat each of the 6 accounts as if it were its own independent portfolio (which they technically are). 

Still not perfect (especially since I can't invest in gold in the 401Ks), but it's much easier to see when things need rebalancing.

I don't think there is a perfect solution in all cases.  But for most people, most of the time, they can usually jigger things around to keep it all fairly (but maybe not perfectly) balanced across all accounts.  A spreadsheet works, although I have used Quicken for many years. 

In my experience, I never had to do literal mini-PPs for every account and found that if I kept at least two asset classes in each account (so that the collapse of one class didn't result in the near complete loss of that particular tax-deferred "space") it usually worked out okay.  That is actually a little easier to do now than it used to be since the development of the precious metals and bond ETFs in the early 2000's.

Over time, like many people I found my 401K (TSP, in my case) account becoming the "gorrilla at the banquet" and that required some creative use of zero coupon bonds and PRPFX inside and outside of IRAs at times and having to occaisonally sell some EE and I bonds I would have otherwise liked to retain.  IMO, most investors just starting out should put some thought and planning into how they will eventually deal with the "oversized" 401k problem.  Otherwise they may feel tempted to frequently shift accounts around between their PPs and VPs.  I think I could have done a better planning job on that score if I had recognized the predictable likelihood of a growing 401K.  Even if you never perfectly solve the problem, the PP strategy will probably put you ahead of most investors.         

[Loafer]

Harry Browne suggests in Fail Safe Investing the following hierarchy for pension plans:  1. T Bills,  2. T Bonds, 3. Stock Mutual Fund, 4. Gold.

But, he was writing in a time when money earned much more interest.  I wonder if he would suggest otherwise today.  T Bills may not be on the top of the list these days. I've got Stocks in my IRA.  Any thoughts?

[notsheigetz]

Ideally I would like to end up with my best performing assets in my Roth IRA, the worse in traditional IRA, and the rest in taxable (that's in order of expected tax liability).

Unfortunately this requires you to make some predictions about the future and this goes against the PP strategy but I do exclude cash from my Roth IRA. Unless we see interest rates like my parents saw when they retired (18%) I don't currently expect much growth from cash.

I do have lots of cash in my traditional IRA's.

[sophie]

Goodasgold, I hope you're getting the sense that there are lots of right ways to handle the mix of accounts.

Keeping separate PPs in each account definitely simplifies matters, but I'm one of those who chose to go with a PP distributed across taxable and tax-advantaged accounts.  I like holding physical gold, and between that and I Bonds I've managed to really cut down my tax liability.  It is useful to hold some gold ETFs, maybe 1/3 of the total, in tax-advantaged accounts to make it easy to rebalance.  It also might be a bit daunting to devote so much taxable space to gold, and it took me a while (and an outsize emergency fund) to get used to the idea.

A valid concern that has come up several times is that concentrating one or two assets in one account can make it difficult to rebalance, and can decimate an account if that asset goes south.  That could get unpleasant if the account in question is a Roth IRA.  So I try to keep all four assets including a good bit of cash in my Roth, but I don't have to be too concerned about the balance.  The cash is counted as part of my emergency fund (ever since I discovered that you can take out contributions anytime - thanks to whoever wrote that.)

As HB Reader said, institutional 401Ks can be the elephant in the room.  You can probably manage stocks and cash, but unless you have a brokerage window or tax-deferred money from former employers to roll into an account under your control you'll have some difficulty with the bonds and gold.  Other options are to accept a lopsided PP, deal with a suboptimal bond fund, or punt on all or part of the 401K and set it up as a separate Bogleheads-type portfolio.  There are also a few ways to shift tax-deferred contributions out of institutional plans, like a traditional IRA or a solo 401K. 

Good luck!

[MachineGhost]

As HB Reader said, institutional 401Ks can be the elephant in the room.  You can probably manage stocks and cash, but unless you have a brokerage window or tax-deferred money from former employers to roll into an account under your control you'll have some difficulty with the bonds and gold.  Other options are to accept a lopsided PP, deal with a suboptimal bond fund, or punt on all or part of the 401K and set it up as a separate Bogleheads-type portfolio.  There are also a few ways to shift tax-deferred contributions out of institutional plans, like a traditional IRA or a solo 401K.

That definitely applies to "no frills" variable annuities as well.  IRA's can actually hold physical gold Eagles or Treasury bonds with the right trustee; can't say the same about variable annuities even offering the choice.