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Gold taxation thoughts

Posted: Sat Jan 27, 2018 8:22 am
by ochotona
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.

=========================================================================

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.

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 8:57 am
by sophie
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.

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 9:24 am
by ochotona
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).

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 9:27 am
by Cortopassi
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.

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 9:58 am
by sophie
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.

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 11:30 am
by ochotona
MangoMan 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.

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 2:44 pm
by barrett
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!

Re: Gold taxation thoughts

Posted: Sat Jan 27, 2018 3:10 pm
by ochotona
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.

Re: Gold taxation thoughts

Posted: Sun Jan 28, 2018 5:51 am
by barrett
ochotona wrote: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.
OK, got it. I'll turn 59.5 in a couple of months and plan on taking advantage of that 12% bracket to do some Roth conversions over the next few years, if they make sense given my wife's income (which varies from year to year).

Regarding a tax-deferred account being a less than ideal place to hold gold, for us, those accounts represent about 40% of our investible assets as we head into our retirement years. Because I plan/hope to do a bunch of conversions over the next 10-11 years, I want some gold in those tIRAs to ease sequence of returns risk (don't want to be converting from an account that has been knocked down by an early-retirement stock bear).

Basically, I like the idea of holding some gold in every account. We don't have all of our accounts set up as pure 4X25s but even a 10% gold allocation can - hopefully - mitigate stock & bond downturns. Basically, I want the flexibility to withdraw or convert regardless of what is in a certain type of account. For me that outweighs the advantages of tax treatment tweaking.

BUT, definitely good food for thought, ocho.

Re: Gold taxation thoughts

Posted: Sun Jan 28, 2018 11:00 am
by sophie
We have no idea what's going to happen of course, but the way the law was written the 12% bracket will go back to 15% in 10 years (or 7....I forget exactly).

Barrett, your timing for 401K to Roth conversions might be perfect. Regarding gold...I also am shooting to have at least some of each asset in every type of account. It would be great to predict that, e.g., stocks will do the best over the next few years so stuff as much of that as you can into the Roth, but who the heck knows what's going to happen. All I know is that whatever comes out of the 401K accounts is the most heavily taxed, so I hope I succeed in arranging things so that these accounts grow the least. Ideal scenario is that the Roth gains big time and the 401K's drop like a rock. One can only hope.

Re: Gold taxation thoughts

Posted: Sun Jan 28, 2018 2:22 pm
by ochotona
barrett wrote:OK, got it. I'll turn 59.5 in a couple of months and plan on taking advantage of that 12% bracket to do some Roth conversions over the next few year, if they make sense given my wife's income (which varies from year to year).

....

Basically, I like the idea of holding some gold in every account.
YES, the next eight years are a great time to take advantage of what might be a temporary rollback in tax rates and convert Trad IRA to Roth IRA!

To change the topic slightly, I stumbled into the fee schedule for the GoldStar gold IRA, they only charge a $175 total annual fee for a $100,000 account, 17.5 basis points. That includes storage. That's lower than any gold ETF. I stumbled into that one yesterday. That is cheaper than buying the next increment of safe deposit box insurance, my insurance is fully utilized, and I can't buy any more physical gold until I buy the next increment.

I'm serious thinking of taking my SGOL (39 basis points) holding at Schwab and flinging it over to GoldStar and saving money immediately and having real metal. They work with my favorite PM dealer.

Re: Gold taxation thoughts

Posted: Sun Jan 28, 2018 7:09 pm
by ochotona
MangoMan wrote:How do you know goldstar is safe? What is to stop them from disappearing with your money?
I personally place the PM buy order with my own dealer. The dealer sends the PM to a vault they trust and the transaction is recorded by the trust company which then pays my dealer. I can get confirming documents from the vault.

Can't get any of that with GLD!

Re: Gold taxation thoughts

Posted: Wed Jan 31, 2018 10:04 am
by Libertarian666
ochotona wrote:
barrett wrote:OK, got it. I'll turn 59.5 in a couple of months and plan on taking advantage of that 12% bracket to do some Roth conversions over the next few year, if they make sense given my wife's income (which varies from year to year).

....

Basically, I like the idea of holding some gold in every account.
YES, the next eight years are a great time to take advantage of what might be a temporary rollback in tax rates and convert Trad IRA to Roth IRA!

To change the topic slightly, I stumbled into the fee schedule for the GoldStar gold IRA, they only charge a $175 total annual fee for a $100,000 account, 17.5 basis points. That includes storage. That's lower than any gold ETF. I stumbled into that one yesterday. That is cheaper than buying the next increment of safe deposit box insurance, my insurance is fully utilized, and I can't buy any more physical gold until I buy the next increment.

I'm serious thinking of taking my SGOL (39 basis points) holding at Schwab and flinging it over to GoldStar and saving money immediately and having real metal. They work with my favorite PM dealer.
Thanks, that sounds very good!

Re: Gold taxation thoughts

Posted: Wed Jan 31, 2018 11:40 am
by ochotona
So far, the gold IRA process is going well. The new custodian is going to oversee an in-kind transfer of SGOL from Schwab to their broker, US Bank, then I'll put in a sell order, and call the dealer and buy the metal after the cash is confirmed, so little or no time not being in my gold position. Hopefully less than a day. It's all transparent, with trusted (as far as you can trust your gold dealer, Schwab, and US Bank) public actors. The custodian doesn't own anything, they are just the traffic cop. It's fine.

Re: Gold taxation thoughts

Posted: Wed Jan 31, 2018 2:44 pm
by Jack Jones
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.
O0

Re: Gold taxation thoughts

Posted: Thu Feb 01, 2018 7:31 am
by Libertarian666
ochotona wrote:So far, the gold IRA process is going well. The new custodian is going to oversee an in-kind transfer of SGOL from Schwab to their broker, US Bank, then I'll put in a sell order, and call the dealer and buy the metal after the cash is confirmed, so little or no time not being in my gold position. Hopefully less than a day. It's all transparent, with trusted (as far as you can trust your gold dealer, Schwab, and US Bank) public actors. The custodian doesn't own anything, they are just the traffic cop. It's fine.
I'm going to open an account with them as soon as I get the cashout of my Swiss annuity, hopefully this week or next.

Re: Gold taxation thoughts

Posted: Thu Feb 01, 2018 8:54 am
by sophie
Not a bad deal for Goldstar. Some thoughts:

- If you do backdoor Roth contributions, make sure it's a Roth and not a traditional IRA you're opening with them.

- You need about $40K in the account in order to beat Fidelity's precious metal IRA fees. For smaller amounts the expenses are higher.

- It looks like they charge fees for non-gold investments, so if you rebalance out of gold you'd need to transfer the money somewhere else. How does that work? There are potentially several layers of fees involved.

Re: Gold taxation thoughts

Posted: Thu Feb 01, 2018 9:05 am
by Libertarian666
sophie wrote:Not a bad deal for Goldstar. Some thoughts:

- If you do backdoor Roth contributions, make sure it's a Roth and not a traditional IRA you're opening with them.

- You need about $40K in the account in order to beat Fidelity's precious metal IRA fees. For smaller amounts the expenses are higher.

- It looks like they charge fees for non-gold investments, so if you rebalance out of gold you'd need to transfer the money somewhere else. How does that work? There are potentially several layers of fees involved.
Fidelity has pretty high fees for buying and selling, namely 2.5% to buy $10K-$50k and 2% to sell for 0-$50k. You can do WAY better than that by opening a dealer's account with a wholesaler and having that wholesaler do the transaction for goldstartrust.

Re: Gold taxation thoughts

Posted: Thu Feb 01, 2018 12:14 pm
by ochotona
Hi Sophie, I can't do the Backdoor Roth because of what I'd done years and years (decades) ago to my IRAs... the pro-rata rule would be in place, and I just don't want to mess with it. I have the ability to make beaucoup Roth space with my Roth 401(k).

Goldstar is going to charge me $25 to sell my SGOL shares. Not the $4.95 discount fee, but I'll pay it once. The account value is six figures, so the fee bite is small as a percentage. It even makes sense on a short-term basis. Now, if I can just get it in funded in time to get the January Clearance prices from Texas Precious Metals for Maple Leaves, I'll be in business.

Re: Gold taxation thoughts

Posted: Tue Feb 06, 2018 9:24 pm
by ochotona
Trade is done, got the same price for physical gold today as when I sold my ETF on Friday - a few nail-biting moments there due to volatility. Only 1.5% premium, it was the annual clearance sale at Texas PM. Random year Can Gold Maple Leaves. I was on the I-10 in my car, placing this big order (we can talk on the phone with hands-free devices in Texas. Probably was a bad idea though).

Billing Information:
FBO OCHOTONA IRA
GoldStar Trust IRA #9999999
P.O. Box 179
Canyon , Texas, 79015
United States

Shipping Information:
FBO OCHOTONA IRA
Delaware Depository Services Co
3601 North Market Street
Wilmington, Delaware, 79015
United States

Re: Gold taxation thoughts

Posted: Wed Feb 07, 2018 7:26 am
by Libertarian666
ochotona wrote:Trade is done, got the same price for physical gold today as when I sold my ETF on Friday - a few nail-biting moments there due to volatility. Only 1.5% premium, it was the annual clearance sale at Texas PM. Random year Can Gold Maple Leaves. I was on the I-10 in my car, placing this big order (we can talk on the phone with hands-free devices in Texas. Probably was a bad idea though).

Billing Information:
FBO OCHOTONA IRA
GoldStar Trust IRA #9999999
P.O. Box 179
Canyon , Texas, 79015
United States

Shipping Information:
FBO OCHOTONA IRA
Delaware Depository Services Co
3601 North Market Street
Wilmington, Delaware, 79015
United States
Whenever my Swiss franc annuity cashout money comes into my Fidelity account, I'll be doing the same. Thanks!

Re: Gold taxation thoughts

Posted: Tue Feb 27, 2018 11:56 am
by Libertarian666
Libertarian666 wrote:
ochotona wrote:Trade is done, got the same price for physical gold today as when I sold my ETF on Friday - a few nail-biting moments there due to volatility. Only 1.5% premium, it was the annual clearance sale at Texas PM. Random year Can Gold Maple Leaves. I was on the I-10 in my car, placing this big order (we can talk on the phone with hands-free devices in Texas. Probably was a bad idea though).

Billing Information:
FBO OCHOTONA IRA
GoldStar Trust IRA #9999999
P.O. Box 179
Canyon , Texas, 79015
United States

Shipping Information:
FBO OCHOTONA IRA
Delaware Depository Services Co
3601 North Market Street
Wilmington, Delaware, 79015
United States
Whenever my Swiss franc annuity cashout money comes into my Fidelity account, I'll be doing the same. Thanks!
I finally got that money so I'm working on getting the Goldstar IRA set up. Thanks again for the info!

Re: Gold taxation thoughts

Posted: Tue Feb 27, 2018 10:26 pm
by ochotona
Be a little patient concerning how long it takes the metal to post into the account. My metals got to Delaware Depository on Friday, they posted the following Wednesday, which was slow for me, I'm generally impatient. Other than that, no problems.

Re: Gold taxation thoughts

Posted: Wed Feb 28, 2018 12:12 am
by Libertarian666
ochotona wrote:Be a little patient concerning how long it takes the metal to post into the account. My metals got to Delaware Depository on Friday, they posted the following Wednesday, which was slow for me, I'm generally impatient. Other than that, no problems.
Ok, but since I'm planning to buy something that is already in the Delaware depository (if feasible), it should take less time.

They have already opened the account even though I only applied today, so that part at least is quite fast.

Fidelity is actually going to be one of the limiting factors because they require a physical form to transfer assets from a "non-prototype" account to an IRA rollover. However, that should only be necessary a couple of times.

Re: Gold taxation thoughts

Posted: Wed Feb 28, 2018 4:41 pm
by Mr Vacuum
ochotona wrote:Trade is done, got the same price for physical gold today as when I sold my ETF on Friday - a few nail-biting moments there due to volatility. Only 1.5% premium, it was the annual clearance sale at Texas PM. Random year Can Gold Maple Leaves. I was on the I-10 in my car, placing this big order (we can talk on the phone with hands-free devices in Texas. Probably was a bad idea though).
That's pretty slick. To wrap around to the original question, you ended up in the same situation in terms of taxes, essentially transferring from one IRA to another IRA, right?

Also earlier you remarked/asked about tax loss harvesting. As far as I can tell the collectibles rule only applies an upper limit for taxing gains, whereas collectibles losses simply count as capital losses by the normal short or long term rules.

There's also this odd idea that gold, being a collectible and not a security, is exempt from wash sale rules. So you can just sell and rebuy anytime you want to record a loss without waiting 31 days or finding a similar but different asset to buy? It's logical but I don't recall hearing about it around here. Do people do this?

https://www.forbes.com/sites/baldwin/20 ... gold-bugs/
Unlike most investments, metal ETFs are exempt from the wash sale rule limiting losses on securities sold and then immediately repurchased. Robert Gordon, president of Twenty-First Securities, explains: The IRS, avid to collect the higher collectible-rate tax, has decreed that the metal funds are not “securities.” But the wash sale statute applies only to “securities.”