Slabbed coins in IRA accounts.

[truthteller]

A few months ago, Industry Council on Tangible Assets, ICTA, gave a non binding inquiry poll on whether slabbed coins should be placed in IRA accounts for investments. An informal poll was done by several dealers. I never found out the results, but the idea of slabbed coins in IRA's sounded a bit out of place in the hobby. Do you think it would be a good idea, or would it cause problems for the hobby? I say let the investments and hobby be separate.

 

 

 

 

TRUTH

[chinook]

I see no problem in putting rare coins in an IRA as we can already put bullion coins and real estate in them.

 

I know the government places restrictions on these accounts to protect ourselves, but IRA stands for INDIVIDUAL retirement account. Let me decide where I want to put my money.

 

I see no more risk in owning rare coins than I do in mutual funds, stocks, bullion or real estate. I have seen several people lose nearly their entire retirement nestegg by investing in such permitted investments as Munder Net Net fund, JDS Uniphase, Worldcom, ect..

 

The key here is not to put all one's assets in one area. I see rare coins as an integral part of any well-balanced, diversified portfolio.

[RobertB]

Just an interesting note. In the last three months I have bought about $1200 in coins. Most at great bargains thru auctions and what not. They are all easily marketable and attractive coins. Greysheet is over 1700 bid right now, and I KNOW I could get that money. I'm down right certain of it. A weekend on ebay alone and I'd have that money like that. So, let's say I could make $500 profit for my three month investment.

My wife contributes to a 401K program at work. In the last three months she's put in about $480. Because I currently have her in mostly aggressive foreign investments her return has been amazing, about 20%. That comes out to a profit of $ 96.

 

Amazing isn't it. My coin picks have given me a return of just over TWO times more, and remember I have her in a very aggressive foreign fund (because of the weak dollar and stellar international and MNC growth). Her return is actually quite impressive to me, but mine is down right shocking.

 

Granted, there will not always be great bargains to cherry pick and I won't always be able to find coins under-graded in slabs, but how different are these ups and downs from the stock market or any other investment? Not much I think.

 

My only fear is that shady investment brokers will sell [!@#%^&^] and this will negatively affect the market, like the Morgan dollar schemes of the 1980's. That would certainly knock us down a bit. Fortunately there was somewhat of a quick recovery in the market, (although not nearly complete), but that may not be so the next time.

[jom]

Actually, IRA stand for "Individual Retirement Arrangement", contrary to what most think.

 

Anywho, I would guess there is a reason for the IRS (and the Labor Dept. who controls these things) to NOT allow collectables in IRA account. I don't have any idea what it is however. It does sound to me like the govt, once again, trying to use the "lowest common denominator" rule where they assume everyone one is a [!@#%^&^] and can't handle their own finances. I've sure there are some that have this problem but I think the govt should put more into EDUCATING the masses about personal finance rather than shoving rules down our throats.

 

As to using coins as an investment in an IRA: Bad idea, IMO. Why? Because the BEST investment for IRA's are ones that bring INCOME rather than Capital Appreciation. Because you get taxed as INCOME when you take your money out of an IRA or 401k plan it is NOT a good idea to hold long-term appreciating assets that would do better with the Cap gains tax rate.

 

On the other hand if you are talking about a ROTH IRA then any investment you might think will do well can be used.

 

There was a recent proposal by the Bush Admin that suggested a complete overhaul of the Retirement system, one I thought was terrific. It, unfortunately, got put on the back burner but I expect it will be revived. Fiscal Liberals derided it for "cuts for the rich" which was non-sense in this case but that is politics I guess. Read about it here:

 

LSA

 

jom

[truthteller]

Quite interesting article. Thanks for the link.

 

 

 

TRUTH

[chinook]

..............."As to using coins as an investment in an IRA: Bad idea, IMO. Why? Because the BEST investment for IRA's are ones that bring INCOME rather than Capital Appreciation. Because you get taxed as INCOME when you take your money out of an IRA or 401k plan it is NOT a good idea to hold long-term appreciating assets that would do better with the Cap gains tax rate."

 

Jom,

 

I have to disagree 100%. Growth stocks have always outperfomed income stocks over the longer term. I would much rather invest in a stock that grows at 10% per year for 20 years than one that pays a 4% dividend.

 

Capital gains do not matter in an IRA or 401k. You do not pay capital gain taxes in an IRA. The money you take out of an IRA is taxed as ordinary income but it does not matter how much profit you have on your investments. If I take my $10,000 IRA and it grows to $1 million, then I do not have to pay taxes on the $990,000 gain, only income taxes on the amount I withdrawal.

 

[Beijim]

I'm with chinook on this.

 

An IRA or 401(k) or similar is intended primarily as a long term investment vehicle. As such, it's unwise to allow current tax law to dictate investment strategy, unless such law directly and materially affects the tax sheltering characteristics of the vehicle itself.

 

Put more simply, the manner by which gains accrue in a long term tax sheltered investment vehicle such as an IRA or 401(k) is irrelevant. It is only at the point when you actually draw income from the vehicle (presumably many years in the future for the purposes of this discussion) that the tradeoff jom describes becomes worthwhile. If you're in that position TODAY, I'd agree that capital gains are best realized OUTSIDE the tax sheltered account, while dividend income would be better realized INSIDE the account. But note that such a judgment is based entirely on short-term tax policy, in effect today, that's subject to change.

 

If the IRA or 401(k) time horizon is long term, I'd be thinking growth from capital gains. Over long term time horizons, these generally outpace returns from income alone, albeit with greater risk.

 

None of the foregoing is investment advice. It is only my opinion.

 

Beijim

 

[jtryka]

As for slabbed coins in IRAs, I am a bit leery on this since there are so many unanswered questions, like:

 

Who determined which grading companies are eligible? Is ACG viewed the same as PCGS or NGC? We all know that grading companies are not all equal, so buying an MS-65 Morgan dollar would be very disappointing if it was overgraded.

 

Who determines what coins go into the accounts? For most investment accounts what is deposited is uniform, i.e. one share of IBM is like any other, or $1 in cash is like any other $1. But with coins, we all know that one MS-65 may not be the same as every other. There are toning, luster, overall eye appeal, all the things that make you choose one coin over another, but which may not be possible if you call your broker and place an order to buy 5 MS-65 Morgans.

 

How is the market price determined? Is it just grey sheet bid/ask? How do you sell? How are the coins stored? How can I identify the coins that are mine? How do you prevent brokers from placing all the "dog" coins with these accounts?

 

IRA and brokerage accounts are ideally suited for commodity items and are horrible for one of a kind type items. To me, slabbed coins in IRAs still provide way too much opportunity for fraud and cheating. Coins may be good for a mutual fund where people knowledgable in coins may buy and sell the best coins for the money. This would eliminate the cheating aspect and would provide uniform securities that could be held in IRA accounts etc. But even funds offer risks of cheating as well as the unintended influence on the markets depending on the area of focus for the manager. To me, the past is a good indicator of why we should not want investments and coins to come too close together.

[jom]

Capital gains do not matter in an IRA or 401k. You do not pay capital gain taxes in an IRA. The money you take out of an IRA is taxed as ordinary income but it does not matter how much profit you have on your investments. If I take my $10,000 IRA and it grows to $1 million, then I do not have to pay taxes on the $990,000 gain, only income taxes on the amount I withdrawal.

 

I don't think this is correct but I realize I didn't explain my point earlier very well (and there's no guarentee I'll do any better this time...):

 

Let me use your analogy of the $1 million. Two senerios: You are now 40 years old.

 

1) Buy $10,000 of Disney stock in my IRA and hold for 20 years. Grows to $1 million. I'm now over 59 so I sell ALL. I'll pay NOTHING when I sell the stock but when I take it out I'll be taxed as ordinary income which is generally HIGHER than Cap Gains. BUT...I'll only pay on what I take out. The more I take out the more I pay based on the tax structure.

 

2) Buy $10,000 of Disney stock outside my IRA and hold for 20 years. Grows to $1 million. I'm not over 59 so I sell the equivalent to what I'd take out of my IRA in 1). I only pay 15% tax REGARDLESS of how much I take out. It is a FLAT TAX.

 

There is a BIG difference there. Obviously, we do NOT know what the tax law will be in 20 years. Hell, we don't even know INCOME tax will exist at all. So that is up in the air.

 

jom

 

PS: In my senerio I said Disney would rise a lot in 20 years. This will only happen if they buy out CU and turn PCGS into the Mickey Mouse grading service we all know it really is.