Taking money out of retirement funds to purchase cards

[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.