Taking money out of retirement funds to purchase cards
 

On another forum, I read a post where two member spoke about buying cards and withdrawing funds to purchase vintage cards that they wanted. One had being doing it for a while and said that “buying and holding vintage cards made more sense that investing in stocks”.

In a recent conversation with a dealer, he said that this was commonplace, especially in the last few years. Some buyers have had to delay card purchases due to having wait for the payout from funds.

Is this commonplace? I, personally, cannot fathom withdrawing funds from my retirement for card purchases, but maybe I am in the minority.

wuold never do that ,,what i dont have today i dont need tommorow

Investing
 

I'm from the old school. Don't touch your home's equity or retirement accounts.

I remember 2008...401ks, home equity, college funds of so many people I knew...gone by being risky.

Not saying this is anything like the RE market, but you worked your entire life for that money.

An old investor told me years ago.."It's like a football game; when you make a field goal and there's a penalty on the play....never take points off the board and get greedy.."

It's not necessarily crazy. How has the 311 done compared to the S and P 500? Maybe it makes sense to diversify for some people.

Wow...

I mean...wow.

I suppose there are worse ways to invest your retirement savings. Certainly crypto is high on that list, along with anything where you're just spending it and it's gone forever.

There's no question that they'll probably get more enjoyment for now out of buying cards, but those chickens are going to come home to roost eventually, at which point hopefully they don't come begging for the rest of us to fund their retirement if they end up short.

But priorities, right? Cards are good fun, and if we're lucky, we'll sell them before we die for more than we spent on them (or before we die and the wife sells them for what she thinks we spent on them). But to risk your financial security on them seems like you're playing with fire.

It worked well for me over the last few years. However, I'm nowslowly adding back into stocks over the last year or so. Not something I'd reccomend if money is needed within the next 15 years

Draining retirement accounts to do it doesn’t sound like diversification but going all in on the current fad.

Although, I have been reliably informed by people who put too much of their money into cards that the only direction for baseball cards is up, and Mickey Mantle is the safest investment that can be made. Empty your retirement accounts, sell your house, and put all in on mass produced cardboard pictures. Be a visionary and print that money #investemoji

I act as if my cards ARE part of my retirement. For me, it's all about diversifying. I have quite a bit into cards but it's not a double digit percentage, or barely one, of my net worth. Everyone has a unique financial situation but having some of your money into cards isn't a bad thing.

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I wouldn't advocate draining retirement accounts by any means, but it isn't an all or nothing proposition.

what really makes sense is the 30% taxes with penalty. Very Dopey Strategy made by Dopey Mcdope dopes

Agree. Any collection worth more than a small amount is diversification of sorts.

I have never specifically taken retirement money to buy hobby stuff and never will.

Drew, I have heard some of the same things from dealers who set up at the bigger shows with the higher-end vintage names I collect. From what I’ve seen and heard this has been commonplace since around the Start of all these Vaults, especially since March 2020. Idk to each their own I guess.

1 thing to "invest " in the cards that you do, in lieu of funding the 401K or roth.
However, once in your retirement accounts, it's shouldn't be coming out until retirement. Also another thing to have a good portion in cash, within the account. Paying 30% taxes to withdrawal is for idiots. Dollar cost AVG never hurt anyone:D

Right, and any decision to spend more than a small amount on cards, rather than putting it into stocks or other assets, is whether one likes it or not, an investment decision or one with investment implications.

If you’re to the point where you’re taking money out of retirement accounts, and incurring the heavy taxes and fees for doing that early and improperly, I have a hard time seeing how this person isn’t going all in. Once you’ve gone this far, there isn’t much further to go.

I have no problem if people want to invest some money in coins, stamps, crypto, beanie babies or cardboard. It’s riskier, but there’s also a plausible chance they will outperform my index funds. If you’re taking money out of retirement accounts to do it, this person really should hit pause and reflect on what they are doing.

Very Dopey Chuck. I hope Bob C can opine on this further. To me, this whole subject of investing in sports cards has taken a sharp turn for many to day trading, no buy and hold investing or buy and homework investing. They want To be vaulted where they can easily flip their cards while buying other ones in the blink of an eye. I don’t mind people investing in cards one bit, it’s the PWCC Brokerage House Trading that has me a little concerned about the future.

And once the cards are in the vault, then you can borrow against them to buy more cards!

So not only have you placed 100% of your assets into cards, you've leveraged up to 160% or more...

Isn't it wild!! Feels like a very slippery slope to me. Idk thank God we have smart guys with money who love the cards and are keeping this hobby strong many of whom are on this board :-)

I guess maybe they follow Michael Saylor, except instead of Bitcoin, they go with cards:

‘How do I buy more Bitcoin?’ Take all your money. Buy Bitcoin. Then take all your time, figure out how to borrow money to buy more Bitcoin, then take all your time and figure out what you can sell to buy Bitcoin.” - Michael Saylor

It's not something I would do.

I also wouldn't take on debt to buy collectibles, although I've been told that I won't be a serious collector until I do. That was regarding a stamp that was "needed" to maybe make an exhibit worthy of a top prize. Of course there's only one, and the last sale was 60K, more debt than I'd ever consider for a collectible.

I don't think enough info is provided. What type of retirement account are they withdrawing funds from? What are the ages? Withdrawing from a 401k is much different than withdrawing from a Roth IRA same as withdrawing before age 59 1/2 is a lot different than withdrawing after age 59 1/2. That information will have drastically different issues with taxes and penalties on the withdrawal. As I understand the rules, personally I might consider it from a Roth IRA, but wouldn't even think about it from a 401k.

You could take out what you put into your Roth Accounts Before 59 and a half without any penalty, just not your gains.

Exactly my point. Withdrawing from a 401k you'll get rocked on the penalties and taxes, but a Roth you're not going to have the same expenses taking out your contributions.

Yes sir. A tradition Ira or 401k withdrawal prior would be Tax Hit City.

Idk people are Addicted to Cards and the Possibility of Making Major Gains now so I can see where they’re gonna get tempted and do it. Idk 🤷*♂️ nothing wrong with it. It’s their money, I guess smoke it if you want to.

Good thoughts, DJ.
First of all, I haven't gotten into debt over cards. I might extend a payment for a short period, but that's it. And that is because I didn't want to take money from retirement accounts. And I am still not going to do it BUT .....

...As devil's advocate. What is the difference from taking it from one account or the other AS LONG as you account for the tax implications. Let's say I want to buy a 35k card out of my 401k. Whenever I take it out, now or later, it's going to be taxed. IF I account for that, and take 50k? out, to pay the taxes, what's the difference?

(and I have both IRA and ROTHs). I just turned 61 (dang I am old).

I believe you can withdraw without penalty from a traditional 401k without penalty if you replace it within 90 days.

So many kids over on blowout using credit cards to buy modern boxes from panini, grade the cards on their credit card, just to flip and pay the card off before interest accrues. A dangerous game of hot potato.

But cards only go up

And stocks can only go up too.

Medical bills for my wife took all of our savings.

First, congrats on reaching 61, Leon.

Second, while the tax penalties are important, don't miss the forest for the trees here. The major point that this discussion is missing is that once you withdraw funds from a retirement account, you can never put them back in. There are very low annual limits that limit the amount that you can contribute to your tax-advantaged retirement accounts. If you start pulling cash out, then your ability to put it back into those accounts is very limited. And for those of us with a short runway between now and retirement, your ability to replace those funds is even more limited.

The ability to bank tax-deferred (or tax-free in the case of a Roth) growth in a retirement account for multiple decades is one of the easiest and low-risk financial layups in our country.

For most Americans, we already are woefully short (financially speaking) when it comes to preparing for retirement. For Americans in their 50s, the median account balance is ~$60k. If you've got $60k in your retirement account and you're in your 50s, I can guarantee you that pulling those funds to buy cards is going to leave you waaaaaaaaay short for retirement.

Let's say you pull $50k out of your Roth today, instead of leaving it in the account for the next 30 years before you need it. If it grows on average at 7% per year (which is not an unreasonable assumption), at the end of 30 years, you've got $380k, all of which is tax free. If it grows at 8%, then you're talking $500k.

Even for someone like Leon who just turned 61, the odds are good that you will live to be 80 or 90, so you may very well be keeping some portion of your retirement account invested for the next 20+ years.

Don't just focus on the tax penalties, because that's a total and complete red herring in this discussion. Remember that there's a lot more involved than just what happens today, because making this decision today could dramatically affect your financial health once you to reach retirement.

Assuming you're right about replacing the money in 90 days, that's still a dangerous game. Come day 91 Uncle Sam isn't going to care what you were doing with that money.

However, this does touch on another point to consider. As I understand it, once you take money out of the retirement fund, you're going to struggle to put it back in down the road. In the Roth example, if you withdraw the contributions, you can't put those back in later. You can make new contributions, but you're still limited to the yearly maximum and can't go over it. So in 1, 5, 10 years, when cards are no longer a "good" investment, you're stuck with those funds being outside the retirement umbrella.

I had a chance 3 years ago, late 2019 to buy a SGC 6.5 311 Mickey Mantle for $82,000 Cash. It was beautiful but had a little toning/browning of the borders. I could have done it with my ROTH Def Comp but didn’t do. It’s all good I missed it, 100% looking back it would have been very smart but hey you win some you lose some. Tomorrow is another day to learn and be productive :-)

Exactly the same sentiment. It's scary. Many factors also resemble the housing boom that led to the financial crisis.

Sometimes it's better if you don't win big the first time you pull the slot machine, because then you get cocky and keep pulling it until you lose everything.

Agree Fully !!!

In many cases you can get a loan against your 401K and pay yourself back with the interest going to you. Not that I'm advocating that to buy sports cards.

Yes, you can take a loan, but...

You have to pay it back within 5 years in substantially equal payments at least quarterly.

And there are pretty low limits to the amount that you can borrow. Basically the max you're going to get is $50k, and the limit could be lower for a lot of people. It's not nothing, but you're not going to buy many 52T Mantles with it.

Needless to say, there's not much of a long-term hold strategy here.

I guess if you're extra enterprising, you can put the card into the vault and borrow from the vault and use that to repay your retirement account loan. Or even better, use the vault loan to buy more cards!

Who knows, but all asset classes have their own set of risks especially short to medium term. IMO this bright line distinction between the stock market and cards is not necessarily right.

I don't think there's anything wrong with having a portion of your assets in nontraditional investments like collectibles. And I think we're all on board with that idea. Hell, if I'm honest, especially based on the runup in values the last couple of years, about 25% of my assets are tied up in cards. At the same time, I max out my contributions every year to my retirement accounts.

But taking cash out of your retirement accounts to buy collectibles is folly.

I was using Leons 35K example, it would get you a 1914 CJ Cobb if you want one and you're not paying interest to anybody but yourself. If you think the Cobb is worth more in 5 years than it is now and will appreciate at a faster clip than you 401K investments then it might pencil out. If you have $400K in your 401K and you want 9% of your assets in sports cards and you wanna take a gamble then it might make sense. And that's a big might.

Keep in mind that the portion of your retirement account that is loaned out to you is also not growing when it's loaned out to you, other than the interest that you're paying yourself, which is usually pretty low. If the market goes nuts during that window, then you miss out.

I think you will make way more on certain vintage cards then the s&p 500

I could not and would not ever think of doing this. I have been saving and planning way too long for the day I can hang up the network geek shirt and move onto the next phase. And not to mention, my wife would kill me.

More motivation in that last sentence than anything above it.

I have a little over a year left. And it just cannot get here fast enough for me.

Cheers,

Butch.

Same here. And I think she would be right! :)

The answer is different for different people but for some they will be in a lower tax bracket when they retire. Thus, the t (tax rate) is not the same in both cases. Secondly, by withdrawing early you loose the compounding in the money. That said, the compounding on the card might exceed that on the retirement account investment (or it might not). The other thing to consider is that the transaction fees for buying and selling cards, if done via the auction route, are much higher than fees in the equity markets.

I have made it a practice to not take funds that are earmarked for any purpose to use them for another. I have never borrowed formally or informally to fund a card purchase. As I have done with everything in my life, if I want it and have the money for it, I go get it. Plain and simple.

As Leon stated, my cards too are part of my retirement. Until such time as cards become an asset class that are regulated, I would question anyone's judgment who withdraws from a retirement account to fund a card purchase unless it is as a loan and they are as sure as they can be that it can be paid back in the time stipulated.

I have done as well with cards as I have with real estate, over the years but I would never suggest to someone that cards are a better investment vehicle for appreciation than stocks, real estate, etc.

[Updated a bit because I realized some of my math was off...]

Good point about the added friction of selling costs.

I think when you factor in selling costs and taxes, you’re going to end up with a lot less than you expected.

Let’s say I buy a 311 mantle for $500k, and in 10 years it goes up to a cool $1M (with the juice). How much do I get to keep after auction fees? If it sells for $833k before the juice ($1M including the juice), the auction house keeps the bidder's premium, and I get charged 5% listing fee, then that leaves $791k.

Now I have a taxable gain of $291. I’m going to pay 31% to the feds for income tax (including my Obamacare investment taxes), plus let’s say I’m in a middling state with about a 4% tax rate. All-in, I’m at 35% for taxes. So I pay about $102k to the government, leaving me with $689.

I net about $189k, which isn’t bad, but probably a lot less than what you were expecting by my card going up by $500k.

If you think it’s going to only double in value in 10 years your better off with the s&p 500

Even if it goes up by $500k in one year, I'm still getting a lot less than the $500k that it went up by.

And if I bought the SGC 5 #311 Mantle at $306k, then it might take longer than 10 years for me to double my money.

[Spoiler alert: I didn't buy that Mantle.]

Do it if it's something that you really want and most likely won't have another shot at it. You only live once.

I am really sorry to hear that. The family financial pillage that occurs in this health care system model is appalling. I hope you both are well and have long, prosperous lives to rebuild.