Taking money out of retirement funds to purchase cards

[raulus]

Originally Posted by oldjudge

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.

[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.