Physical gold or ETF for my IRA?

[ozzy]

Hi all,
I really enjoy this forum. I’m in the process of adopting the PP for my Roth IRA.  I could do the standard PP allocation VTI/TLT/SHY/GLD.  However I’d rather follow Harry Browne’s recommendation and hold physical gold.

Therefore my IRA will ONLY contain VTI/TLT/SHY, and I’ll hold gold bullion separately.  Since there’s a $5000 yearly IRA contribution limit, the greatest benefit I see with holding physical gold is I won’t be "wasting" a portion of my IRA on GLD, something that produces no dividends.  Do you agree with this logic?  And how many of you hold physical gold vs an ETF? 

Thanks.

[hogtied]

greetings ozzy and welcome.  I think you'll find that most of us hold physical gold and also gold ETF's.  The main reason for holding some in an ETF is that it makes it easy to rebalance your gold holdings.

[moda0306]

Your insistence on going physical is great, but I'd make a couple tweaks to your thinking on tax-deferred accounts.

Gold may not throw out income, but held outside an IRA any asset will build a value that will eventually be taxable.  Over time, this will take a sizeable chunk out of the NRV of your investment vs if it had been growing in a Roth the whole time, or an IRA with favorable tax-rates of money coming out vs going in.

Also, some etf gold makes rebalances a bit easier.

[rickb]

If taxes are a concern, another option is one of the Canadian closed end funds, i.e. GTU or PHYS.  If you file the right forms (every year you own it), gains in these are taxed at long term capital gains rates (if held in a plain old taxable account) rather than the collectibles rate (for gold or gold ETFs held outside IRAs) or the ordinary income rate (for anything including gold held in a standard, not Roth, IRA). 

On the other hand physical gold (difficult to own in an IRA of any kind) has 0 counterparty risk, which in one sense is infinitely better than gold held any other way.

[blackomen]

If your only option with physical gold is to buy it and store it at home: forget it.  Buy GLD instead.  You're more likely to lose your physical gold through theft than losing your GLD investment through its collapse.

If you can afford the overhead of a vault (preferably in Switzerland), then it may be a better option than GLD or keeping physical gold at home.

[Ad Orientem]

If your only option with physical gold is to buy it and store it at home: forget it.  Buy GLD instead.  You're more likely to lose your physical gold through theft than losing your GLD investment through its collapse.

If you can afford the overhead of a vault (preferably in Switzerland), then it may be a better option than GLD or keeping physical gold at home.

In general I would agree that home storage is almost always high risk.  An allocated account in a bank vault somewhere might work, but for most people I would think that simply stashing your coins in a bank safe deposit box works fine.  It has some advantages over both home storage and allocated storage in a bank vault.  First it is vastly more secure than home storage.  And unlike an allocated storage arrangement in a bullion vault, you don't have to declare what's in your safe deposit box to the bank or the government.

An exception to my preference for safe deposit boxes would be for persons who are fortunate enough to be among the much maligned 1%.  If your investments are so large that you could not conveniently store your physical gold in two safe deposit boxes then it's probably time to start thinking about an allocated account in a bullion vault.  The Perth Mint strikes me as a good place for HNWIs to stash their gold.  Switzerland is good, but it is a bit pricey to bank there and most Swiss banks don't want much to do with Americans these days.  Even those that will take our business normally won't let you through the door unless you're ready to deposit seven figures with them. 

A final word on Swiss banks.  Yes, I think they are still probably the safest place to put money and store gold.  But their vaunted reputation for bank secrecy is pretty much dead.  Recent events have demonstrated quite clearly that if the US Treasury really tightens the screws on them, they will cave.

[Ad Orientem]

As an addendum to my previous, I would add that if you are going to use an ETF for part or all of your gold holdings I prefer IAU over GLD.  It is substantively the same deal at near half the fees and expenses of GLD.

[ozzy]

Thanks for the feedback everyone.

I'm using a safe deposit box at my local bank for storage.  I’ve already started acquiring gold buffalo 1oz coins, and plan on acquiring more over the next few years.

[Ad Orientem]

Thanks for the feedback everyone.

I'm using a safe deposit box at my local bank for storage.  I’ve already started acquiring gold buffalo 1oz coins, and plan on acquiring more over the next few years.

Good plan and welcome to the forum.

[jackely]

I'm facing the same issue both setting up new Roth IRA's for me and my wife and rolling one over into my PP from a company 401k.

I suspect I might be in the minority in my opinion if not standing completely alone but my intention is to make the Roth IRA's 100% gold ETF's and balance the rest of my PP around it.  I will be acquiring some physical gold also but not in the Roth IRA (can you even do that?).

As for my reasoning, I consider the Roth IRA to be my longest term investment, not to be touched except in case of emergency. It's therefore a bet I'm placing on gold but still staying within the safety parameters of the PP for my overall strategy.

[moda0306]

You can create physical gold ira's, but they're a headache and I'm not sure about a Roth.  I don't like the idea of telling the government about my emergency wealth, though.

[craigr]

I suspect I might be in the minority in my opinion if not standing completely alone but my intention is to make the Roth IRA's 100% gold ETF's and balance the rest of my PP around it.  I will be acquiring some physical gold also but not in the Roth IRA (can you even do that?).

It's best to put your bonds, stocks and some cash in the IRA first. They throw off taxable income that can be sheltered. If there was a big emergency you'd also want to have access to the gold and that would be very difficult if it was all in an IRA.

In order of assets, I generally advise:

1) Bonds
2) Cash (keep some outside for emergency use)
3) Stocks

Gold I would advise not keeping in an IRA except for perhaps an allocation for rebalancing to avoid tax exposure. But mostly it should be the last thing to go in. IMO.

[gap]

From Barrons - FYI
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
.....
Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities.

[jackely]

Gold I would advise not keeping in an IRA except for perhaps an allocation for rebalancing to avoid tax exposure. But mostly it should be the last thing to go in. IMO.

craigr's opinion on all things financial is worth 10 times more than mine any day of the week and I mean that in all sincerity. I'm just throwing my own contararian idea out there because it makes sense to me.

My PP consists mainly of a traditional IRA and a taxable account. The Roth accounts I'm adding will initially amount to less than 10 percent of the total. How much they will grow after that will depend on the small amount they let you invest each year and the price of gold.

According to other advice I've read, when spending down your retirement accounts you should do it in order of greatest tax liability first, smallest last. So I don't expect to spend the Roth accounts for at least 20 years, if at all (I'm 62).

So my thinking is that it's a fairly safe long term bet on the price of gold. If gold disappoints then the only thing I suffer is that more of my investment income will be taxable. If it takes the astronomical leaps that some have suggested, then I can look forward to enjoying my "golden years" tax free. 

I WILL be careful to use multiple ETF's to minimize counter party risk.

One other risk I see in this strategy is that the government might change the rules in the middle of the game, which wouldn't be the first time. I've heard talk of eliminating all capital gains taxes, in which case there would be no point in even having a Roth IRA. I can see them doing away with the Roth IRA but leaving the collectibles tax on gold in place which would leave me really screwed.

If this forum is still around I'll let you know how it went in 20 years.

[melveyr]

Physical gold is an extremely portable and anonymous asset class. It loses both of these characteristics when placed in an IRA. Gold is very different from stocks and bonds, and I like that. Putting it in an IRA waters down its usefulness IMO.

[jackely]

Physical gold is an extremely portable and anonymous asset class. It loses both of these characteristics when placed in an IRA. Gold is very different from stocks and bonds, and I like that. Putting it in an IRA waters down its usefulness IMO.

This sounds like a good argument for holding physical gold, which I don't yet but intend to do shortly, but if one is going to hold some gold in an ETF why does it matter whether it is in an IRA or not?

Still haven't heard any convincing argument about why I would not prefer to have my potentially best performing assets in my Roth IRA. Seems to me that putting cash and long term bonds in it would only "water down" the growth potential for tax-free income in the future.

[ozzy]

One way to view physical gold as future tax-free income would be the fact that its unlikely any government would be aware of profits on it.  For example, one could slowly accumulate gold bullion over many years, then years later in retirement, one could sell some of the gold in small increments and pocket the profits.  Assuming gold has increased in value.

I am not suggesting people should avoid taxes they’re legally liable for, I’m simply saying it could be easily done.

[rickb]

... but if one is going to hold some gold in an ETF why does it matter whether it is in an IRA or not?

A gold ETF held in an IRA (with other PP assets) allows you to rebalance (e.g. sell gold to buy other assets) without paying tax now.  The tax on the ultimate gain is (currently) at least similar - gains on a gold ETF held outside an IRA are taxed at the collectibles rate while gains on a gold ETF (along with everything else) held within an IRA are taxed at the ordinary income rate.

Another potential difference is what happens if these are assets that you don't sell during your lifetime.  I'm not sure if stock "basis step up" rules (the cost basis for stock held by an estate or stock you inherit is reset to the cost as of the date of death of the original owner) apply to gold ETFs, or whether they apply to assets held in an IRA.  My guess is no on both counts, but I'm just guessing.  If anyone's looked into this, maybe they can comment.

[yankees60]

From Barrons - FYI
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
.....
Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities.

Anyone aware of anything similar to this happening in the subsequent nine years?

Vinny

[yankees60]

Gold I would advise not keeping in an IRA except for perhaps an allocation for rebalancing to avoid tax exposure. But mostly it should be the last thing to go in. IMO.

craigr's opinion on all things financial is worth 10 times more than mine any day of the week and I mean that in all sincerity. I'm just throwing my own contararian idea out there because it makes sense to me.

My PP consists mainly of a traditional IRA and a taxable account. The Roth accounts I'm adding will initially amount to less than 10 percent of the total. How much they will grow after that will depend on the small amount they let you invest each year and the price of gold.

According to other advice I've read, when spending down your retirement accounts you should do it in order of greatest tax liability first, smallest last. So I don't expect to spend the Roth accounts for at least 20 years, if at all (I'm 62).

So my thinking is that it's a fairly safe long term bet on the price of gold. If gold disappoints then the only thing I suffer is that more of my investment income will be taxable. If it takes the astronomical leaps that some have suggested, then I can look forward to enjoying my "golden years" tax free. 

I WILL be careful to use multiple ETF's to minimize counter party risk.

One other risk I see in this strategy is that the government might change the rules in the middle of the game, which wouldn't be the first time. I've heard talk of eliminating all capital gains taxes, in which case there would be no point in even having a Roth IRA. I can see them doing away with the Roth IRA but leaving the collectibles tax on gold in place which would leave me really screwed.

If this forum is still around I'll let you know how it went in 20 years.


This forum is still around almost half those next 20 years. However "jackely" seems to have been gone for an indeterminate amount of time!

This forum has still been around almost half those next 20 years. However "jackely" seems to have been gone for an indeterminate amount of time!

The question is whether he will be coming back in 2031 to let us know.

Vinny

[ochotona]

Ozzy, I started a gold taxation thread a while back, click here.

Traditional IRAs are not the best place for gold ETFs. Roth or Taxable Accounts or Taxable Physical.

Roth is tax-free. Also HSA.

Taxable is taxed as ordinary income, but capped at 28% which might be important if you're going to be a wealthy person in retirement, and if tax rates for you would normally be higher than 28%

In Taxable account there are no taxes until you sell, but you can always donate it to charity, or give it as a gift, or sell it during a low income year (like before you take Soc Sec, or if, like many, you might be unemployed in 2020 and 2021). Or sell it for a loss and tax loss harvest.

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

[Libertarian666]

Ozzy, I started a gold taxation thread a while back, click here.

Traditional IRAs are not the best place for gold ETFs. Roth or Taxable Accounts or Taxable Physical.

Roth is tax-free. Also HSA.

Taxable is taxed as ordinary income, but capped at 28% which might be important if you're going to be a wealthy person in retirement, and if tax rates for you would normally be higher than 28%

In Taxable account there are no taxes until you sell, but you can always donate it to charity, or give it as a gift, or sell it during a low income year (like before you take Soc Sec, or if, like many, you might be unemployed in 2020 and 2021). Or sell it for a loss and tax loss harvest.

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

And if you die with it in a taxable account, the basis is revalued to the date at death.

[CT-Scott]

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

This would be true of a 401k also, correct? I know that 401k accounts don't typically have gold options, so I'm guessing that's why you didn't call out 401k accounts.

[Libertarian666]

Traditional IRA always taxes what comes out as ordinary income... it converts cap gains to ordinary income, which is POISON.

This would be true of a 401k also, correct? I know that 401k accounts don't typically have gold options, so I'm guessing that's why you didn't call out 401k accounts.

Yes, 401k should be the same as IRAs in this regard.

[CT-Scott]

Actually, I guess I'm still confused...

If I've got the option to own paper gold in my 401k account (for sake of argument, let's say specifically the IAU fund), I should be able to trade my IAU for some money market fund later *inside* of my 401k, without any tax implications. So, when I want to *actually* pull some money out of my 401k (when I'm retired) I could just "sell" some of my IAU shares inside of my 401k account, which then becomes money market money inside my 401k. And *then* I withdraw some of that money market money.

So I'm missing ochotona's comment that holding gold inside of a traditional IRA (or 401k) converts cap gains to ordinary income, and thus a bad idea to hold paper gold inside one of these types of accounts.

What am I missing?