Taking money out of retirement funds to purchase cards

[x2drich2000]

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.

[Johnny630]

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

[x2drich2000]

Originally Posted by Johnny630

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.

[Johnny630]

Originally Posted by x2drich2000

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.

[Leon]

Originally Posted by x2drich2000

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.

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).

[Republicaninmass]

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

[Peter_Spaeth]

And stocks can only go up too.

[DHogan]

Medical bills for my wife took all of our savings.

[Exhibitman]

Originally Posted by DHogan

Medical bills for my wife took all of our savings.

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.

[Luke]

Anyone who did this between 2000 and 2019 outperformed the market massively if they bought blue chip cards. I wouldn't do it now, but it has worked in the past.

I know the OP is talking about people pulling money out of retirement accounts, but in a way we are all doing this with our collections. Every dollar you spend on baseball cards is a dollar you could have plowed into a Vanguard fund. I'm sure there are people who just invest every extra dollar, and to them the way we spend on cards probably looks crazy.

[Sean]

I borrowed a few times from my 401K to fund card purchases. I always paid it back. And I have a couple cards that matter more to me than the earnings that I missed out on in the market while paying off the loans. I don't know if it made financial sense to borrow, but the cards mean more to me, so it makes sense in that regard anyway.

[Snapolit1]

Originally Posted by Exhibitman

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.

Incredible how a completely broken medical system destroys the retirements of good people who worked hard their entire lives and saved, yet every time a politician says we have to reform the way medicine is dispensed in this country he or she is shouted down, mocked, belittled . . . . It's just mind blowing.

[Directly]

Yep--Spend it all before the Nursing Homes can get it--for six years of care it cost my late mother-law around $460,000, her nursing care insurance policy did help!

[Republicaninmass]

Originally Posted by Peter_Spaeth

And stocks can only go up too.

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

[Peter_Spaeth]

Originally Posted by Republicaninmass

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

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.

[raulus]

Originally Posted by Peter_Spaeth

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.

[x2drich2000]

Originally Posted by Republicaninmass

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

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.

[Johnny630]

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 :-)

[raulus]

Originally Posted by Johnny630

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 :-)

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.

[Johnny630]

Originally Posted by raulus

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 !!!

[raulus]

Originally Posted by Leon

Good thoughts, DJ.
...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).

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.

[Fuddjcal]

Originally Posted by raulus

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.

And I don't want to end up eating cat food and cardboard when and if I make it to 80. Thanks for the sage advice.

[rats60]

Originally Posted by Fuddjcal

And I don't want to end up eating cat food and cardboard when and if I make it to 80. Thanks for the sage advice.

If you had invested 50k in a 1952 Topps Mantle 31 years ago, you could have 12 million dollars today. If your are happy with 10x in 30 years instead of 200x or more, that is your choice. I think retirement with ~10 million would be a lot more enjoyable than one with 500k.

[Snapolit1]

Easy to pick the one card or one stock that has gone up ridiculously to make an argument for an entire class of assets. I am sure many people have bought individual cards for $50,000 and they cratered. Same with stocks. For every 52 Mantle and Amazon there are many many under performers or simply ordinary performers.

[Brian Van Horn]

"Taking money out of retirement funds to purchase cards"

Please don't.

[raulus]

Originally Posted by rats60

If you had invested 50k in a 1952 Topps Mantle 31 years ago, you could have 12 million dollars today. If your are happy with 10x in 30 years instead of 200x or more, that is your choice. I think retirement with ~10 million would be a lot more enjoyable than one with 500k.

Here’s the thing- after taxes and auction fees, that seller only netted about $6M.

Basically half of the $12M+ that it sold for.

The taxes and auction fees will eat so much of your financial returns that if this is your approach to retirement, your returns will have to be astronomical to overcome those financial drags.

[ullmandds]

Originally Posted by raulus

Here’s the thing- after taxes and auction fees, that seller only netted about $6M.

Basically half of the $12M+ that it sold for.

The taxes and auction fees will eat so much of your financial returns that if this is your approach to retirement, your returns will have to be astronomical to overcome those financial drags.

No way in hell the consigner paid auction fees on this

[Casey2296]

Originally Posted by Leon

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).

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.

[raulus]

Originally Posted by Casey2296

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!

[Casey2296]

Originally Posted by raulus

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!

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.

[raulus]

Originally Posted by Casey2296

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.

[MR RAREBACK]

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

[butchie_t]

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.

[oldjudge]

Originally Posted by Leon

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).

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.

[Lorewalker]

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.

[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.

[MR RAREBACK]

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

[raulus]

Originally Posted by MR RAREBACK

If you think it’s going to only double in value in 10 years your better of 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.]

[Bicem]

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