Gold taxation thoughts

Discussion of the Gold portion of the Permanent Portfolio

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ochotona
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Gold taxation thoughts

Post by ochotona » Sat Jan 27, 2018 8:22 am

In the USA, we have four options:

1. Hold the gold in a taxable account - "Gains from investments in physical gold and physical gold ETFs outside an IRA are taxed as collectibles. If a gold investment is held more than one year, any gain is taxed at the same rate as ordinary income, except with a maximum tax rate of 28%" (Tax-efficient investing in gold - Journal of Accountancy). And you can take a capital loss, though I'm not sure at what rate. Same rate as a gain?. One feature I like is I can gift the gold to a 501(c)(3) - all of the capital gains problems go away, vanish.

2. Hold the gold in a regular tax-deferred account like an IRA - A distribution from a gold sale will be taxed in it's entirety, not just the gains, it will be treated as ordinary income.

3. Hold in the gold in a Roth IRA - A distribution from a gold sale will be not be taxed. Roths have advantages for your heirs.

4. Hold the gold in an HSA - A distribution from a gold sale will be not be taxed, and the original contributions will not have been counted as income for tax purposes (some HSAs have brokerage windows, so you could keep a gold ETF). I've not heard of a physical gold HSAs.

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1. is better than 2. because the tax rate is capped at 28%. So there is zero reason to spend years building up a gold IRA, and then take a distribution from it. The tax treatment is always worse. That said, I have a gold ETF in an IRA, but it's a transitional move.

4. uses ETFs, which are maybe OK now, but we don't know about future counter-party risks. Individual decision. Good but maybe not great.

The tax-free features of 3., and 4. are all nice, but the question comes down to this - what do you want to use possibly scarce Roth and HSA space for? I've learned that you want to triage those spaces for those investments which really have a very high potential for a capital gain (so you don't have to pay a capital gains tax). So if you put gold into Roth and HSA space, essentially what you're believing is that you think gold has the highest potential for capital appreciation over and above all of your other choices... if you're making rational use of that space. Clearly this is the case if you strongly believe Jim Rickards' $10,000 gold is coming in your lifetime, and everything else is going into the toilet.

For any gold IRA, Roth or regular, there is the custodian. You might tolerate your custodian, but no one wants there to be a custodian. It's another risk. What if they go out of business, or make an error? It happens! But, you can get a true gold IRA (allocated gold) with a Roth with non-bank storage. So that's good, but the Guvmint still knows where to send the black helicopters.

The tax-free gifting feature of 1. makes taxable gold the same as 3. and 4. if you're a giving soul. My Church has said they will do what it takes to accept bullion metal from me. All we have to do is drive 10 minutes from Church to a really good local gold dealer, and I hand the items to the Church controller, and she hands them to the gold dealer. Done.

So this is what I think:

- If I think gold becomes the premier investment pick over the long term, I'm converting the stocks in my Roth to a Roth gold IRA, and rebuying the stocks elsewhere, might also put my HSA into a gold ETF under those circumstances

- If that's strongly not my opinion, if the US budget situation gets worse and worse, and we get our debt downgraded, and even then if gold does not move strongly, them I'm sticking with taxable gold... so I can gift it away, or take tax losses at some point, or less it pass to my heirs very simply and easily

- If I'm uncertain, then I could blend taxable gold and Roth / HSA gold

- Regardless, a regular IRA is a bad place to keep a lot of gold over the long haul. I need to get off of the dime and do something about those gold ETF shares in my IRA. Sell them and do 1., 3., or 4.
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sophie
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Re: Gold taxation thoughts

Post by sophie » Sat Jan 27, 2018 8:57 am

Good questions, ochotona.

"Deep gold" is ideal for taxable, as it will generate no income and it's unlikely that you'll have to sell it. Keep around 1/3 your gold allocation in tax-advantaged, and you'll be able to sell that to rebalance if needed.

It sounds like you're asking about optimal asset placement in general for sprawling PPs. There's good info in the Bogleheads wiki about this, and Harry Browne dealt with this in his books. His recommendation was: prioritize cash for tax-advantaged accounts because that gets the worst tax treatment, then bonds, then gold, and stocks last (because stocks get the best tax treatment). Notably, in this era of cash and long bonds having similar yields, cash has once again shot up to the top of the list for storing in tax-advantaged accounts. I try to keep a mix in each type of account especially the Roth, because I don't know which asset will outperform going forward. Even cash could turn out to be a winner if the stock market tanks, gold goes with it, and bonds yields drop only minimally.
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ochotona
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Re: Gold taxation thoughts

Post by ochotona » Sat Jan 27, 2018 9:24 am

sophie wrote:Keep around 1/3 your gold allocation in tax-advantaged, and you'll be able to sell that to rebalance if needed.
That sounds like a good strategy. Might have to flex that amount upward to make full use of the gold roth IRA custodian fees (which have minimums).
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Cortopassi
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Re: Gold taxation thoughts

Post by Cortopassi » Sat Jan 27, 2018 9:27 am

Physical.

I have yet only bought from the local coin dealer, and have never sold. But I have seen people bring in coins to sell back. I've not seen any forms ever exchange hands. I'll leave it at that.
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sophie
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Re: Gold taxation thoughts

Post by sophie » Sat Jan 27, 2018 9:58 am

Cortopassi wrote:Physical.

I have yet only bought from the local coin dealer, and have never sold. But I have seen people bring in coins to sell back. I've not seen any forms ever exchange hands. I'll leave it at that.
Well, there is always that ;) But I wasn't going to be the one to mention it.
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Re: Gold taxation thoughts

Post by pugchief » Sat Jan 27, 2018 11:00 am

ochotona wrote: =========================================================================

1. is better than 2. because the tax rate is capped at 28%. So there is zero reason to spend years building up a gold IRA, and then take a distribution from it. The tax treatment is always worse.
No, it isn't. It may be in your situation, but if someone is in a high tax bracket now and a low bracket during retirement when they sell, everything will be taxed at, say, 15%. And don't forget that you are only talking about the gains; the prinicpal is getting taxed at your prevailing rate no matter what you have it invested in.
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Re: Gold taxation thoughts

Post by pugchief » Sat Jan 27, 2018 11:03 am

sophie wrote:
Cortopassi wrote:Physical.

I have yet only bought from the local coin dealer, and have never sold. But I have seen people bring in coins to sell back. I've not seen any forms ever exchange hands. I'll leave it at that.
Well, there is always that ;) But I wasn't going to be the one to mention it.
I would guess that depends on how large the transaction is. I don't own any physical, so correct me if my assumption is wrong.
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ochotona
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Re: Gold taxation thoughts

Post by ochotona » Sat Jan 27, 2018 11:30 am

pugchief wrote:
ochotona wrote: =========================================================================

1. is better than 2. because the tax rate is capped at 28%. So there is zero reason to spend years building up a gold IRA, and then take a distribution from it. The tax treatment is always worse.
No, it isn't. It may be in your situation, but if someone is in a high tax bracket now and a low bracket during retirement when they sell, everything will be taxed at, say, 15%. And don't forget that you are only talking about the gains; the prinicpal is getting taxed at your prevailing rate no matter what you have it invested in.
Good point. Even so, I fear tax rates are going up generally in the future, maybe robustly, so that those who thought their rates were going to be lower in retirement may find that's not the case, because of the Federal debt.
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Re: Gold taxation thoughts

Post by pugchief » Sat Jan 27, 2018 12:39 pm

ochotona wrote:
pugchief wrote:
ochotona wrote: =========================================================================

1. is better than 2. because the tax rate is capped at 28%. So there is zero reason to spend years building up a gold IRA, and then take a distribution from it. The tax treatment is always worse.
No, it isn't. It may be in your situation, but if someone is in a high tax bracket now and a low bracket during retirement when they sell, everything will be taxed at, say, 15%. And don't forget that you are only talking about the gains; the prinicpal is getting taxed at your prevailing rate no matter what you have it invested in.
Good point. Even so, I fear tax rates are going up generally in the future, maybe robustly, so that those who thought their rates were going to be lower in retirement may find that's not the case, because of the Federal debt.
That may or may not be true; it is pure speculation at this juncture. Regardless, if you are in one of the top brackets now, I think it's worth the gamble.
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Re: Gold taxation thoughts

Post by barrett » Sat Jan 27, 2018 2:44 pm

Isn't the 15% bracket going away in 2018?

See here:

http://www.businessinsider.com/tax-brac ... rt-2017-12

Just confused as to why you folks are talking about the 15% bracket. Looks like the 12% bracket is the new 15%. And, with the standard deduction jumping to $12,000, it would seem to me that a lot of money can be be pulled out of tax-deferred accounts with pretty favorable tax treatment.

Of course, if I am missing something, it wouldn't be the first time!
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Re: Gold taxation thoughts

Post by pugchief » Sat Jan 27, 2018 2:58 pm

barrett wrote:Isn't the 15% bracket going away in 2018?

See here:

http://www.businessinsider.com/tax-brac ... rt-2017-12

Just confused as to why you folks are talking about the 15% bracket. Looks like the 12% bracket is the new 15%. And, with the standard deduction jumping to $12,000, it would seem to me that a lot of money can be be pulled out of tax-deferred accounts with pretty favorable tax treatment.

Of course, if I am missing something, it wouldn't be the first time!
15% was just an example, 12% makes my point even more valid.
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ochotona
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Re: Gold taxation thoughts

Post by ochotona » Sat Jan 27, 2018 3:10 pm

The Trump brackets are going away before I retire. I'm using the 2017 brackets. They won't be able to extend them and keep the Dollar from diving.
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