Coins for retirement?
mkrone
Posts: 45
Can you use coins as a retirement vehicle? Say I wanted to withdraw money from my IRA to invest in coins. Is this possible?
A newbie to collecting...but recognize the value of PCGS grading.
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The Lincoln cent store:
http://www.lincolncent.com
My numismatic art work:
http://www.cdaughtrey.com
USAF veteran, 1986-1996 :: support our troops - the American way.
Coins, tangible assets, and PM's have a spot in any retirement account, especially now. But the mindset of the majority is to label anyone who thinks like this a kook or unpatriotic. Only stocks and bonds are patriotic. That's what goes into IRA's. Yup.
roadrunner
One also has to consider how he or she will sell a collection. Unless you have a fairly large collection or some important coins, the larger auction houses won’t give you preferred rates.
Collecting coin is mostly for fun. In a sense it can be a store of value, and unlike many hobbies there the potential that you will get a substantial portion of what you have spent back or even make a profit when you sell. But, don’t count on it.
<< <i>Can you use coins as a retirement vehicle? Say I wanted to withdraw money from my IRA to invest in coins. Is this possible? >>
Several problems here:
1) If you withdraw before you are 59.5 years old there is a 10% "excise" tax on what you withdrew
2) You have to pay tax on the amount you withdrew. It is taxed along with what you made this year. It is NOT considered investment income.
If you meant to say to invest within your IRA you can only do that with American gold and silver bullion coins. AND...they must be HELD by a 3rd party trustee. Another words, you won't be able to look at them too often.
You cannot invest in "Collectables" in any way shape or form. That is considered a "prohibited transaction" and ALL your money within that IRA will be considered "withdraw" and subject to taxes and penalties. Another words: Don't do it.
As to the investment risk, that is something you have to decide for your self. IMO, there are FAR better things to invest in with your IRA monies that gold bullion.
jom
roadrunner
<< <i>It's sort of interesting that though everyone "knows" what it is right for an IRA (at least they think so), easily 90% or even 99% of the investing public will do it wrong in the end. That's the amazing statistic. That's because as humans we have ingrained flaws such as following the herd and investing with emotions. By the time the herd finds out about what has been good in the PAST, it is no longer a good value for the future.
>>
Exactly. It is very difficult to go against the prevailing wisdom and there are no gaurantees
even if you do. Buying low and selling high is almost impossible for almost all participants in
up markets, down markets, and sideways markets. All the forces and even common sense
will tend to lead one to buy high and sell low. There is a lot to be said for dollar cost aver-
aging, compound interest, retirement accounts and all the other forced savings plans.
Coins should be kept in a regular taxable account as should stocks that pay no dividends. If you lose money on a coin or a stock in a regular acct. , you can deduct the loss from your taxes.
If you did, the amount you "invested" would be treated as a distrubution and subject to the 10% penalty (if younger than 59 1/2) and income tax.
So the answer to your question is: NO. Collectibles cannot be held in an IRA.
What is a collectible? Collectible as defined by the IRS: Art work, rugs, antiques, metals, gems, stamps, coins, alchoholic beverages (with this they mean vintage bottles of vine/ champagne etc...), and certain other tangeable personal property.
Exception: You can invest in 1, 1/2, 1/4, & 1/10 ounce US gold coins or 1oz silver coins or platnium coins minted by the US Treasury Dept, also certain gold, silver, palladium, and platnium bullion.
Why are collectibles not allowed in an IRA? Most likely due to the difficulty in valuation and the potential tax loss to the gov't. For instance, you contribute a Morgan dollar to your IRA, how do you determine the contribution amount in dollars? Who's price guide do you use? Too easy to avoid taxes, for instance, you contribute the Morgan in 2003 and value the contribution as the maximum allowable $3000 (under age 50), you personally know darn well the coin's FMV is closer to $2000, yet you proceed to deduct $3K from your taxable income....uncle sam just lost $1K of taxable income. Now, when you sell or take personal posession of the coin at retirement (distribution), you run into the valuation problem all over again....however this time, you want the coin to be valued as little as possible to minimize your tax exposure....again uncle sam potentially loses tax revenue.
IRS Publication 590 is a good toilet read if you want to learn more about IRA's.
Al.
(your friendly neighborhood CPA)
I don't agree with you about non-dividend stocks. Suppose you buy a growth stock (non dividend). It goes up 40%. You decide to sell it and invest in something else. The capital gain is not taxed now. That, I believe, is the greatest advantage of a tax-deferred account.
I don't agree with you about non-dividend stocks. Suppose you buy a growth stock (non dividend). It goes up 40%. You decide to sell it and invest in something else. The capital gain is not taxed now. That, I believe, is the greatest advantage of a tax-deferred account.
Barry, you are absolutely correct (especially since dividends are now taxed at a maximum rate of only 15%), sometimes people ignore the 'other side of the coin'. For most people the words 'Retirement Account'=Conservative.
But I don't think there is a "right" or "wrong" answer as to what to invest in a retirement account (except for municipal bonds -which should never be in a ret. acct)....It depends alot on the age and how risk averse the investor is.
A while back, I worked in broker ops at a brokerage house and remember being amazed at how many clients were day trading their retirement accounts...I initially thought they were all nuts and should be committed to the asylum. However as I became more experienced, I learned to appreciate their strategy, which was: why day trade in an investment account when you'll get hit with short term cap gains on every sale when there are no cap gain tax in an ira? Instead, invest your bonds, blue chips, lg cap growth stock, and securities held for long term investment in your investment account, not in your retirement account to minimize tax exposure. Mind you, these guys knew what they were doing investment wise....So I opened a roth with a measly 2K and day-traded it up to almost 9K in under 8 months (copying my client's buy/sells, but on a much smaller scale) ...no taxes, great! I wouldn't recommend this strategy for people nearing retirement or who have a low risk threshold, but financially, this 'other side of the coin' makes complete sense.
As far as the greatest benefit of a retirement accounts, most people forget the salary reduction or tax deduction aspects (depending on what type of ret. acct you have). Consider the future value on a monthly basis (for emplr sponsored plan), or annual basis (ira) of the tax savings you realized from the time you first began contributing compounded to the time of distribution—now there's some moolah!
BUT.....aye, there's the rub, matey.
The scenario for EVER RISING stocks in an IRA is bright indeed.
But......not ALL stocks go...up. (really)
However a bond held to maturity does. AND cheats the taxman for a while.
Roth IRA's are a bit different.
BUT....................AND HERE'S A BIG.......BUT.....
I am now in ......distribution......phase of my IRA. Howdy there!
A nice little trap that I intend to avoid by taking the distribution NOW instead of the MANDATED withdrawal at 70 1/2. Strip it a bit annually and lessen the bite.
I....KNEW.....IRA's had a catch. There is no free lunch.
However, you are entirely correct if everything you put in your IRA .....rises.....while in the account.
Me....I'll take my chances with spec stocks in a taxable trading acct.
Each to his own.
My and wife's IRA's were in zero bond strips. They worked REAL good as rates fell and fell and fell.
Diversification is a great strategy to save for retirement. If you think you have some "investment grade" coins then by all means tuck them away. But please, keep them out of any qualified retirement plan if you want to keep it that way.
Big Al summed it up well. Here are some IRS quotes on the subject as well as a link. Gold or any collectibles included as part of a retirement plan is highly risky. Try selling some coins and you will understand why. Contrary to popular belief coins make for a horrible investment.
As for mutual funds, stocks, bonds, etc. I find most people have no idea what they are doing. Ironically the media trys to make the general population believe they can do investment planning by themselves without any assistance. As with anything where the stakes are high, get professional advice. If you needed brain surgery would you ask your brother in law for advice? If you were arrested for a felony would you ask your buddy at work? If you are about to lay down big bucks for coins, metals, securities, etc. to fund your non working years would you ask your neighbor for advice.
My ego is not so big I can tell you over the years I lost lots of money because I "knew" what I was doing. Fortunately, that was long ago, I was very young and today I pay people to take the emotion out of investing and I have not make a mistake in over 30 years.
Below is direct from IRS website:
Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.
Here is the link for all you need to know about metals/collectibles in an IRA [from IRS website