Taking money out of retirement funds to purchase cards

[bmattioli]

Ask this to any sane financial advisor..

[G1911]

Originally Posted by bmattioli

Ask this to any sane financial advisor..

You did in 7 words what it took me 3 paragraphs to get at. Brevity is best

[Peter_Spaeth]

Originally Posted by bmattioli

Ask this to any sane financial advisor..

Yes, but financial advisors are not necessarily that familiar with collectibles. A superb one I know is constantly surprised at prices I point out to him.

[BobC]

Great points by a lot of people, especially Nicolo/raulus. He's right on the money in regard to the various tax implications. It is definitely nice to have another CPA/taxperson on the forum that gets it, and so I'm not the lone voice talking many times. LOL

As Nicolo already opined, I would also not recommend pulling money out of retirement accounts, be they 401Ks, IRAs, or Roth IRAs, to go out to buy cards as investments. The tax costs and potential hits to retirement savings can be brutal. Granted, the Rosen/Mantle example is an out of the park home run example of how a card investment would well be worth it, but for every potential deal/investment like that, how many more are there that don't even come close, or could end up in a losing situation? Just think back to the junk wax era, and a possible repeat with all these modern collectors of the shiny new stuff.

But as another poster also mentioned, you have to look at each individual person's own unique situation and tax/retirement position before making such a decision also, along with their age, states/cities they get taxed in, and a myriad of other factors. Still, I would not think it makes sense to ever pull money from any type of retirement account just to buy a card. For many of us, myself included, I did not buy cards with the initial intention of looking at them as retirement assets. I figured it was a hobby, and if one day I could basically get back out of it what I had put in, I would be happy, As we've all seen though, especially with the recent surges in card values, those us that have been collecting for years have the somewhat pleasant result in that our collections have increased in value to the point where it is pretty much impossible to not treat them as an additional retirement/asset class now to some extent. As such, I personally think of the pre-war/vintage cards, especially of HOFs and superstars, as sort of the blue-chip investments on the stock market side of investing. And the shiny new stuff is more like the speculative investments that may, or may not, hold up and retain their value over the longer term, let alone giving their owners decent returns.

Having said that, if you are in a position to acquire a "white whale" card you may not see again for years, and/or otherwise cannot afford to just write a check from existing available funds for, I guess it can't hurt to review one's current retirement situation and investments and see if it would be possible to either borrow or pull-out funds from retirement accounts to make that special acquisition. As long as it looks like it will not negatively affect one's overall retirement planning and position. If one were doing it strictly for investment purposes though, I would not suggest pulling retirement funds out to simply make such an alternative investment. And I would be sure to try and calculate any potential tax or other related direct costs of pulling/borrowing such funds out of my retirement account(s), and factor that into the overall cost(s) I would spend to acquire that "white whale" item. Taking those additional costs into consideration may be that little extra deterrent many need to convince them not to do the loan/withdrawal from their retirement funds in the first place, even if it is a "white whale' item.

In any event, I would definitely not suggest ever taking money out of a Roth IRA account for such an investment as in cards. especially if there is any alternative source available. Taking a non-taxable investment and turning into a taxable investment to me is like adding insult to injury. LOL

I am wondering if at some future date, someone attempts to get items such as cards declared as a true investment asset/class, and pushes to possibly have them considered as an allowable retirement investment in say self-directed IRAs. I can already see some players in the industry, such as some of the current Vault operators, in the not too distant future possibly trying to enable people to fractionally invest in certain blue-chip vintage cards (T206 Wagners, T206 Cobbs, Goudey Ruths, '52 Topps Mantles, etc.) and maybe even assist them in setting up their own self-directed IRAs for them to do so. We've already seen and discussed how some of these Vault operators are offering people the ability to take loans/margin on their vault holdings, just like investment firms do with people's stock accounts. How big of a leap do you think it would be for these same Vault operators to then push the idea of possibly looking at cards as an actual type of retirement investing asset as well? Annual IRA contribution limits ($6,000/yr under 50, $7,000/yr over 49 in 2022) are much lower than annual 401K contribution limits. But get enough like-minded people and start adding their IRA account balances up, and I can see a Vault operator acting on their behalf to maybe buy that Wagner/Cobb/Mantle they otherwise couldn't afford individually. That way you not only wouldn't have to worry about taking money out of one of your retirement accounts to make such a card investment purchase. And for the Vault operator behind such a concept, they could actually promote the idea that the IRA contribution could possibly end up being tax deductible, based on a person's own specific tax and retirement investing situation.

We've joked about it before here on the Net54 forum, but what if all the members did get together and kick in some money to then go out and purchase a card(s) that none of us would likely ever be able to afford on our own? I've owned fractional interests in things before, like a thoroughbred racehorse, so why not the same with say a T206 Wagner, or high-grade '52 Topps Mantle? And then take it a step further and try to get it as a retirement account asset. To my knowledge, that would not be allowable right now, but things do seem to be changing a lot as we move forward.

[raulus]

Originally Posted by BobC

And then take it a step further and try to get it as a retirement account asset. To my knowledge, that would not be allowable right now, but things do seem to be changing a lot as we move forward.

Thanks BobC.

Under current law, collectibles are prohibited in 401ks and IRAs. See IRC Section 408(m). So Congress would have to change the statute. Based on the fiasco of having crypto in 401ks, I don't expect they'll be motivated to make any changes here.

[BobC]

Originally Posted by raulus

Thanks BobC.

Under current law, collectibles are prohibited in 401ks and IRAs. See IRC Section 408(m). So Congress would have to change the statute. Based on the fiasco of having crypto in 401ks, I don't expect they'll be motivated to make any changes here.

And exactly why I said MAYBE in the future. LOL

They do currently allow somewhat non-traditional things like precious metals to be held in IRAs, which definitely falls into Warren Buffet's non-productive asset category. That is the same category cards would fall into, non-productive assets. So you never know. if enough people start pushing it as an alternative asset for retirement account holdings, they may get Congress to okay it one day. At least it is a tangible, physical asset, unlike Bitcoin and other such completely intangible investments/assets.

[Peter_Spaeth]

Originally Posted by BobC

And exactly why I said MAYBE in the future. LOL

They do currently allow somewhat non-traditional things like precious metals to be held in IRAs, which definitely falls into Warren Buffet's non-productive asset category. That is the same category cards would fall into, non-productive assets. So you never know. if enough people start pushing it as an alternative asset for retirement account holdings, they may get Congress to okay it one day. At least it is a tangible, physical asset, unlike Bitcoin and other such completely intangible investments/assets.

Bob, what's the difference between an IRA where you "own" physical gold or just owning an ETF in your account like GLD? And in the case of the former, where is the actual gold and who has possession of it? It's a weird concept to me, although I guess I was vaguely aware of it as an option.

[BobC]

Originally Posted by Peter_Spaeth

Bob, what's the difference between an IRA where you "own" physical gold or just owning an ETF in your account like GLD? And in the case of the former, where is the actual gold and who has possession of it? It's a weird concept to me, although I guess I was vaguely aware of it as an option.

Yeah, I know. Not really a huge difference, but to me at least, the fact there is a physical asset that eventually backs something up, like an actual piece of gold, makes a big difference as opposed to say Bitcoin, where there is literally nothing physically backing it up. Even when you own a share of stock in a company, you technically own a piece of the actual physical assets that company owns.

[raulus]

Originally Posted by BobC

And exactly why I said MAYBE in the future. LOL

They do currently allow somewhat non-traditional things like precious metals to be held in IRAs, which definitely falls into Warren Buffet's non-productive asset category.

I'm sure you saw the case with McNulty v. Commish, where the couple got hammered for holding gold in their IRA and storing the gold at home. They were keeping about $411K in gold at home. Apparently it was based on some brilliant idea on the internet from a shop selling gold online. The couple made a few other missteps, and ended up paying over $300K in taxes and penalties on their IRA of about $700K.

In terms of any gold held in your IRA, basically you can't have unfettered access to the gold, because the law requires independent oversight by a third-party fiduciary. So even if Congress amended the statute to permit cardboard to be held in retirement accounts (a pretty big if), barring a change to the independent oversight from a third-party fiduciary requirement, you couldn't keep your cardboard at home to have and hold and enjoy.

Naturally, as you noted, the vault approach would seem to likely solve the sticky wicket of needing independent oversight by a third-party fiduciary, although I guess we can debate how much oversight you're getting from a vault, and the more cynical among us might even question the fiduciary aspect.

[basesareempty]

I am Old School and am in the market for the ups and downs but with the current down turn in the market and what appears to be an impending recession at best, I have often thought what if I took out a company sponsored 401k Loan where I pay the amount back through payroll deductions with 6% interest that also goes to my account. I then could use the loan to pay off a vehicle, credit cards, buy tangible assets( cards, gold or silver) or whatever? 6% return in the current market is not to bad considering I’ve lot about 22% in the last 18 months or so???

[BobC]

Originally Posted by raulus

I'm sure you saw the case with McNulty v. Commish, where the couple got hammered for holding gold in their IRA and storing the gold at home. They were keeping about $411K in gold at home. Apparently it was based on some brilliant idea on the internet from a shop selling gold online. The couple made a few other missteps, and ended up paying over $300K in taxes and penalties on their IRA of about $700K.

In terms of any gold held in your IRA, basically you can't have unfettered access to the gold, because the law requires independent oversight by a third-party fiduciary. So even if Congress amended the statute to permit cardboard to be held in retirement accounts (a pretty big if), barring a change to the independent oversight from a third-party fiduciary requirement, you couldn't keep your cardboard at home to have and hold and enjoy.

Naturally, as you noted, the vault approach would seem to likely solve the sticky wicket of needing independent oversight by a third-party fiduciary, although I guess we can debate how much oversight you're getting from a vault, and the more cynical among us might even question the fiduciary aspect.

Right you are Nicolo. I've mentioned on the forum before how the easiest way to determine the difference between an investment and a collection is where one stores/keeps their items. Investments in a vault or safe deposit box, collectibles on the walls/shelves of your office or man cave.

On the occasions where someone starts a thread about showing off their man cave/collectibles at home, I've mentioned how someone not wanting their items to be considered as collectibles instead of possibly being investments some day, maybe shouldn't be posting images on a public forum of all their stuff on the walls or shelves of their office/home. For all we know, there is an IRS agent who had been a forum member for years. LOL

[BobC]

Double post.