Taking money out of retirement funds to purchase cards

[Exhibitman]

As card prices surged, my wife asked me why I hadn't bought some of the highest-flying cards when they were relatively affordable (Ruth RC, etc.). I said because I was being responsible and putting every spare dime into IRAs and other savings vehicles: if I'd come home and said "hey, honey, I just took the IRA money and bought a great Babe Ruth card", she'd have thrown me and the Ruth card out of the house.

As for the OP, I think many of us are starting to look at our collections as retirement vehicles. I know that I plan to make picking and dealing into my main occupation when I can retire from my law practice. It can generate some reasonable income and it is just plain fun.

Taxes are intensely personal; there is no one-size-fits-all formula. For example, right now cards held for more than a year are taxed as capital gains at 28%. However, if you create a business and sell that way, your profits are taxed as ordinary income. Then there is the question of entity use, which can result in a pass-through of some income tax-free under the Section 199A deduction. You have to calculate hard and soft costs of using an entity (state franchise taxes, formation costs, costs to file tax returns) against the costs of either going with capital gains or doing a Schedule C and eating some self-employment taxes.

There's also the question of what else you could do with your money and what you have done with your money. Cards are a storehouse of (untaxed) value, same as any other hard asset that doesn't produce income, but the cost to get out is that tax hit on your profits. On the other end of the spectrum, the first $500,000 of gains from the sale of a married couple's principal residence is tax-free. So, you could say that it makes sense to buy a home first and accrue up to $500,000 in potential gains at a tax-free rate over time rather than buy a card first and face a tax on the gains when you sell. $500,000 tax-free is the same as roughly $700,000 with taxes.

In other words, there is no simple advice other than if you are really interested, have a professional figure it out for you.

ETA: one further thought on pulling funds from retirement accounts. We will all face the dreaded "RMD" (required minimum distribution) if we live long enough (I think it is/was 70.5 and I thought I read it was going to be 72), and if we inherit an IRA the distributions can start even earlier than that (Inherited IRAs have to be liquidated within ten years). Money is going to come out of these accounts and be taxed, so spending it on cards may be a good play at that point, as a reinvestment. Until an RMD, it is really, really dicey to pull money out; the ROI better be stellar to justify the tax rate and the penalty for early withdrawal. Plus, the accounts offer a level of asset protection that cards...don't.

And while we are at it, one final thought on velocity. One mistake that the shiny crapsters make is not getting out with a profit when the getting is good. I was at a card show recently and one of the dealers was screaming into his cell phone at someone to "dump my Tatis!" Apparently, he'd been offered into six figures for a Tatis card, declined, and had, shall we say, regrets. If you want to have the card until you die, that's one thing, but if you don't, get out when the profit is good and move into the next deal.