physical vs GLD

[portart]

From the standpoint of taxes would you go all physical (pull out 25% of a retirement fund, pay Uncle Sam 28% or more tax) then buy physical or stay with GLD as your 25% allocation of gold in GLD. Is GLD performing it's job as the gold allocation product for a PP, safely and productively? I have been doing this for years and so far I havent' had a result that would make a difference either way in terms of performance. What other options are there other than violating PP and being mainly in stocks, cash and bond with a few coins you can buy without selling?

[stuper1]

It sounds like you are in retirement already.  To me, a good balance would be toward the end of each year to pull out as much money from your retirement account to just keep you below the next higher tax bracket, and use that money to buy physical gold.  That way you don't pay a higher tax rate on the money, and over a few years time you will build up a good position in physical gold.

You have to pay taxes on the money one way or another before you can use it, unless there is some way to pass it to your heirs tax free or at a lower tax rate.  So, don't let the tax hit deter you from converting some to physical gold each year.

[ochotona]

Using up your tax bracket is key. Also, if you're going to get kicked into a much higher bracket(s) when you have to take the Required Minimum Distribution by age 70.5, then by all means make withdrawals earlier, by filling up your brackets, so you avoid that bracket creep.

To me, a good balance would be toward the end of each year to pull out as much money from your retirement account to just keep you below the next higher tax bracket, and use that money to buy physical gold.  That way you don't pay a higher tax rate on the money,

[portart]

These replies indicate that you don't think it is safe staying in ETF gold, is that correct?

[ochotona]

These replies indicate that you don't think it is safe staying in ETF gold, is that correct?

My reply did not comment on the suitability of physical or ETF gold. I was just commenting on using up your tax bracket.

[stuper1]

The best part of gold is having it in your possession (or close thereto; e.g., a bank safe deposit) in case of lots of different types of catastrophes.  For example, what if the ETF managers turn out to be crooks, or what if a solar flare hits and knocks out all electrical supplies (all those zeros and ones in our brokerage accounts won't mean much).  Gold ETFs are a proxy for real gold during non-emergency times, but who knows if they will still be a good proxy when a crisis hits.

[sophie]

+1.

ETF gold is convenient, but it does not give you the level of protection that physical gold in your own possession does.  The role of gold in the PP is beyond the value of the metal - it's also a form of disaster insurance.  It's your protection against a complete market meltdown.  It also puts part of your wealth out of easy reach of governments, creditors, and lawsuits.  All unlikely events...but how unlikely is a one-time wealth tax?  I think we may see that one day.

If you are past age 59.5 and retired, then it also make sense to start draining your tax-deferred accounts now to minimize the impact of required minimum withdrawals later.  I'd take out as much as you have room for in your current tax bracket, and divide the money between physical gold purchases and Roth conversion.  You still have time to do this for 2014 if you haven't filed yet.

[barrett]

If you are past age 59.5 and retired, then it also make sense to start draining your tax-deferred accounts now to minimize the impact of required minimum withdrawals later.  I'd take out as much as you have room for in your current tax bracket, and divide the money between physical gold purchases and Roth conversion.  You still have time to do this for 2014 if you haven't filed yet.

Sophie, can you expand on this? I am three years away from being able to access my tax-deferred accounts but I was planning to withdraw first from taxable, then from tax-deferred and finally from Roth accounts (while maybe collecting something form SS). Looks like the MRD starts at 70 & 1/2. What's the thinking behind your strategy?

Seems to me that there are at least two distinct scenarios... one where you are at least 59.5 and still working and one where you are 59.5 and retired.

Thanks.

[ochotona]

Barrett, what is happening is the following... high net worth individuals with a lot piled up in IRAs and 401(k)s suddenly find themselves pushed up into higher and higher tax brackets when they finally do start taking serious distributions by age 70.5. And the RMD aggressively gets bigger and bigger as you get older. By then, it's too late to do anything.

What you should do now is build a spreadsheet model of your RMDs, and if they, together with your other sources of income, push you into a bracket you don't like, then proactively take IRA 401(k) distributions after age 59.5 to take the pressure off.

I have the same problem, it's a good problem to have. I am going to aim to have a more or less level Federal Government "take" of my income through my whole retirement. 

There is a point of view, which I am pondering now, that you can have too much in an IRA or 401(k), for the reasons above, and also, if you put stock in a taxable account, your LT cap gains tax is only 15%, and most of your benefit from stock in retirement is LT cap gains. But if you pull out of an IRA, it gets taxed like ordinary income... which might be higher for you. It will be for me. I don't think I'll be in the 15% bracket ever again, unless something bad happens to me and my assets.

If you are past age 59.5 and retired, then it also make sense to start draining your tax-deferred accounts now to minimize the impact of required minimum withdrawals later.  I'd take out as much as you have room for in your current tax bracket, and divide the money between physical gold purchases and Roth conversion.  You still have time to do this for 2014 if you haven't filed yet.

Sophie, can you expand on this? I am three years away from being able to access my tax-deferred accounts but I was planning to withdraw first from taxable, then from tax-deferred and finally from Roth accounts (while maybe collecting something form SS). Looks like the MRD starts at 70 & 1/2. What's the thinking behind your strategy?

Seems to me that there are at least two distinct scenarios... one where you are at least 59.5 and still working and one where you are 59.5 and retired.

Thanks.

[barrett]

Thanks for the explanation, ocho. I don't think we have the problem of having too high a percentage in our tax-deferred accounts but I'll keep this in mind when the time comes so I can do the numbers and figure out what our best approach is. Right now we are shooting have more or less a third in taxable, a third in tax-deferred and third in Roths (probably won't get there on that one, but that's the goal). When looking down the road a few years all we can do is to try to leave ourselves options because tax rates can change on income, capital gains, and just about anything else.

By the way, I am only high net worth compared to people who have no retirement plan!

[ochotona]

Thanks for the explanation, ocho. I don't think we have the problem of having too high a percentage in our tax-deferred accounts but I'll keep this in mind when the time comes so I can do the numbers and figure out what our best approach is. Right now we are shooting have more or less a third in taxable, a third in tax-deferred and third in Roths (probably won't get there on that one, but that's the goal). When looking down the road a few years all we can do is to try to leave ourselves options because tax rates can change on income, capital gains, and just about anything else.

By the way, I am only high net worth compared to people who have no retirement plan!

Yeah, and Obama thinks I'm "wealthy", too.

Do try a spreadsheet approach, where you make a simulation of exactly how you would draw your money out, from taxable or tax-deferred over time. Use a real rate of return on your investments, that way you can use today's brackets and you don't have to inflate them.

If you have a potential problem, you will see it. It will be a bracket jump at age 70.

[Libertarian666]

As I mentioned on another thread, I'm developing a program to help with the "tax bracket in retirement" issue, and am looking for beta testers (and a C++ developer to help, if one should happen across this). I should have a beta version available sometime in the next few months.

[MachineGhost]

As I mentioned on another thread, I'm developing a program to help with the "tax bracket in retirement" issue, and am looking for beta testers (and a C++ developer to help, if one should happen across this). I should have a beta version available sometime in the next few months.

I would start your own announcement thread when the beta is ready to release.

[Libertarian666]

As I mentioned on another thread, I'm developing a program to help with the "tax bracket in retirement" issue, and am looking for beta testers (and a C++ developer to help, if one should happen across this). I should have a beta version available sometime in the next few months.

I would start your own announcement thread when the beta is ready to release.

I will, thanks.