Should I cash in my retirement account and pay the penalty?

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dmger14's picture
dmger14
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Should I cash in my retirement account and pay the penalty?

I have just about $350 k in my government retirement account, and fear that:

1)  I cannot protect it from losing value outright, and certainly to inflation (purchasing power), and

2)  that before long Uncle Sam will be confiscating wealth and looking hungrily at retirement accounts.

I can cash it in at a penalty, where there is a 20% withholding for taxes (presumably trued up for actual taxes per my tax filing).  Or I can cash it in, pay taxes but transfer it to a Roth IRA where I can direct investments to gold, etc. but where it would still be on the government's radar screen for confiscation/wealth tax.

Any useful advice on whether to cash it in for a single payment or transfer to Roth would be appreciated.  If I DO get a single payment, I don't plan to use it all for gold and silver, as I already have a lot and worry about the smaller chance of DEFLATION coming about, which wouldn't bode so well for PMs.

 

Thanks! 

dmger14's picture
dmger14
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BTW, I have my CFA

BTW, I have my CFA designation, a degree in finance, masters work in finance, and 20 years of experience related to finance.  I have met NOBODY who can show me the math of how we're going to get out of this pickle.  Peter Schiff's Crash Proof and David Wiedemer's Aftershock are excellent books that really look prescient in our situation.

Any help on cashing out or transferring to Roth would be appreciated, including any thoughts on the possibility of confiscation/pooling of retirement accounts, means testing, ,etc.   I realize we are in agreement here, and each probably have family members (my wife and my brothers!) who have no clue and don't want to know of the h&ll we can expect to go through...

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Wendy S. Delmater
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Welcome to the community,

Welcome to the community, dmger14!

This is a frequent topic here. One discussion on it can be found at http://www.peakprosperity.com/forum/anyone-taking-10-penalty-and-cashing-out-401k-or-ira/14434. There are other seriies of posts on the topic "retierment account": just use the handy Google 'search this site' feature on the upper right-hand side of any page in PeakProsperity.com.

Our example might be instructive to you. We did and we didn't. My husband works full time; I work part-time from home as an engineering consultant, but we do not bring in enough for things we need for what we see is coming. So we've been cashing my IRA out, and left my husband's intact. With the 7% state tax and penalties it was more like a 37% hit on what I took out so far. All of it went to preps, physical items to get us more sustainable. Most notably we bought an airtight woodburning stove ($5,500) and a well ($3,000), but also other things like materials to put in a huge garden and security things like steel framed front and back doors, new locks and a perimeter fence. We did buy a little silver, but that was in case we needed to pay our tiny property taxes that way. Taxes on our South Carolina home were only $350 last year.

A lot of it went to little things that add up, like insulating shades for all the windows, repairing window screens, contents of the bugout bag, pantry items, fruit trees - and a safety lesson for me, the new gun owner, who just inherited a revolver. We needed canning supplies and canners, a clothesline, and all the little things the "What Should I Do?" series suggest that are right for our situation.

Our philosphy is, "It will only get more expensive and harder to find, so we might as well buy it now." We do a little bit every day, every weekend, toward our goals. Are we there yet? Heck no, but we'd not be where we are today unless we'd raided my 401K. And we can tell prying relatives that my money is all going to making our eventual retirement less expensive. And we tell them we still have his retirement account. (For now.)

neutrino's picture
neutrino
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 dmger14 One option that

 dmger14

One option that may be available to you is taking a loan against your retirement account and investing in PM's.  If it's like the 401k you get the loan without penalty or taxes on it.  You then must make regular payments including interest, back to yourself.  The amount of the loan will be subtracted from your total sum and not be available to invest.  For example if you have $350k and borrow $50k you only have the remainder $300k to invest.

You can counter your loan repayments with a corresponding offset in your contributions.  With a recession/depression looming it not likely to be an opportunity loss. AFter the loan is repaid you have all the money back in your account plus interest and the PM's you bought.  

This may be a nice compromise to the 40-45% haircut you would otherwise take with an early withdrawel.

 

dmger14's picture
dmger14
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Thanks safewrite!  It's

Thanks safewrite!  It's refreshing to finally talk/write to people who understand our dire situation.

I was looking for the search feature but didn't look so high!  Unfortunately, my wife doesn't buy into any of this, despite the fact that she knows I am no dummy and that I spend probably two hours a day on various sites (zerohedge, this one, dollarcollapse.com, etc.) reading up on the latest goings on.  So the bottom line is that it is a fight for me to buy PMs and I feel guilty when she gives me grief about it, even though I know much more of our situation than she does.  She once said "They will make food because people will be hungry."  Try dealing with someone who said something so idiotic as that!  Congratulations on having a partner who is of the same mind, because I'm sure it makes a world of a difference compared with what I have to deal with!  I have no more food than she'll allow me to stock before hearing it, and I have no canning/gardening or other survival skills other than owning guns and being a hunter for 20 years, so I'm toast if things get really bad and can't barter with my silver!

I didn't think of the tax bracket issue.  Does anyone know offhand the cutoff for higher brackets and whether payouts get added to annual income or how that works?  My area of expertise does not deal with personal taxes.  Maybe I could put SOME in Roth or spread out payments over a few years.  Anyway, thanks again and I will check out that link!  if the answers are there, I don't want people wasting their time re-posting them here.

 

 

 

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Wendy S. Delmater
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as to tax brackets

As to how your withdrawals should consider your resulting tax brackets, that is what we have accountants for. Our accountant has been very helpful.

I married my husband 2.5 years ago, in part because he understood what is coming. He had no debt and a paid-off house. Alimony eats half his take-home pay, but I can live with that. We found this site right after we married - yes, it is great to find others who "get it!"

There is a "What Should I Do?" (WSID) entry on dealing with a reluctant spouse, written by Chris Martenson's wife who truly did not get it at first. One thing I have heard suggested is that you store your preps at a local relative's garage, or in a storage unit. Whatever you do, have fun, for whatever value of fun this might be for you. Since I love gardening, being frugal, improving our home to be more energy efficient, and things like canning and target practice - I'm enjoying the process of prepping. You don't feel powerless about the future when you are doing something positive about it!

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dmger14
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I will certainly consider

I will certainly consider that as well.  Never an easy decision to be made!

The statement says that there is a 20% withholding for money NOT being transferred to a ROTH, meaning all money I would get in my checking account.  Seems to me they can tell what you put in and only tax you on the EARNINGS of the fund, and that 20% is a benchmark rate that gets trued up to actual.  

If I transfer to Roth, would I still pay the 10% early withdraw penalty or just taxes?  Sorry so many questions but retirement is new to me.  Seems like yesterday I was skidding out at the bottom of the street on my bigwheel!

BTW, the administrative people here at my federal government office tell me I can't withdraw my TSP retirement money without financial hardship, but the form I printed out makes no mention of that being a requirement so I assume I CAN get to it...

 

Wendy S. Delmater's picture
Wendy S. Delmater
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cashing out

Somewhere in that thread I gave you a link to there is a reference, possibly a link, to a book on the How To.

My husband's retirement is in a 401K. He's in all cash, and hesitates to take out a loan. But 401Ks are a cast iron bee-otch to cash out of early, unless you take out a loan to yourself.

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dmger14, If you are not 59

dmger14,

If you are not 59 1/2 years old,  you cannot pull money out of your workplace retirement account without a 20 percent witholding (for tax purposes) plus  a 10 percent early withdrawal penalty.     Read your plan bylaws very carefully and consider the consequences.

If you are past 59 1/2 you can----

  (1)   leave the money in your plan to be withdrawn at a later date

 (2)   roll over the money into an IRA account with a mutual fund company, brokerage firm etc.

   Only  your after-tax contributions and earnings can be rolled over to a Roth IRA account.  That is if your workplace plan had an  after-tax  option, like Roth 401k .   All other money, such as employers matching contribution and earnings is taxable upon withdrawal so this portion can only be rolled over to a Regular IRA.   Visit websites of T Rowe Price, or The Vanguard Group for clarification.

 

 

dmger14's picture
dmger14
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Carl, I am 46.  I did not

Carl,

I am 46.  I did not know that I couldn't get to my money to at least transfer it to a Roth, if not take a penalty and have access to it. I WAS told that by a gubment employee but the form doesn't note that I cannot do it so I was going to try anyway.  Are you SURE I can't transfer it?   If so, I guess there's not much I can do but keep it in the G fund and hope by the time I take it out it the $500 k plus will buy more than a used car!  Personally, I think the first step toward confiscation might be the government forcing all retirements to invest in treasuries to displace China's walking away from our debt.  I'm sure there will be some patriotic mantra thrown out there to try and make such a bad investment palatable.  This would also not be as inflationary as otherwise since the fed (the soon-to-be only buyer of treasuries) wouldn't have to print as much to buy the debt.  I think after this scheme buys an extra year or two of time, there might be outright confiscation/taxation to keep the ponzi scheme going, along with means testing for benefits we all paid into over the course of our careers.  The math is simply too scary to think it won't come to these drastic measures!

Poet's picture
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Other 401(k), IRA, and Retirement Cashout Threads

Here are a few other 401(k) and IRA and retirement cashout forum topics, found using the handy Google Custom Search box on this site:

401(k)
http://www.peakprosperity.com/forum/401k/55664

Anyone Taking The 10% Penalty And Cashing Out 401k or IRA? (Safewrite already posted this link)
http://www.peakprosperity.com/forum/anyone-taking-10-penalty-and-cashing-out-401k-or-ira/14434

Should I Cash Out Early On My State Retirement?
http://www.peakprosperity.com/forum/should-i-cash-out-early-my-state-retirement/50137

Cashing Out Your Retirement Early And Buy PM's?
http://www.peakprosperity.com/forum/cashing-out-your-retirement-early-and-buy-pms/51538

And here is a reprint of some of my thoughts on the matter:

Poet wrote:

If you think the economic situation is precarious, then you should be worried about the stability of your job.

If you are worried about the stability of your job, then you should not be taking out a big loan from your 401(k) and gambling that you'll be able to repay the loan substantially before you lose your job. Because when you lose that job, you will have to return the money. If you can't repay all of it (I think it's something like 90 days), that money is treated as a distribution and you are taxed on it and have to pay the penalty as well.

Even if you don't lose that job or leave that job... since economic situation is uncertain, it's also likely that you will fail at your market timing gamble on earning enough through investing the loan proceeds. Your earnings on the money invested with your loan proceeds are taxed, and you have to pay back the 401(k) loan in monthly installments with after-tax money...

The wiser thing I wuld suggest, is to consider reducing your 401(k) contribution to the minimum to get a match, or stopping your 401(k) contribution altogether, and start pumping up a self-directed Roth IRA.

Poet

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401K

Solid advice. Of course, if the economic situation were that precarious to begin with (implying near collapse) , would the IRS survive, like a governmental cockroach, to demand tribute from former taxpayers? One wonders...;-)

The person's relative job security is an important aspect, as some people could be eligible for withdrawals, due to their arrival at the magic age of 59.5 years. Asset management companies and employers also have something called "in-service withdrawals", but I believe that they are limited to some percentage of your assets (and not all companies have ISW as an option).  However, I like your suggestion of lowering the participants contributions to the minimum required to obtain the company match, and funding their modified financial plans after taxes...

 

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Gyponolan
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401K

Wish that I had read the other posts before I posted - My apologies for being a NOOB

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Self Directed IRA/401K

I've written about this before (see the following links and excerpts). Since establishing our self-directed IRAs (one for me and one for my wife), we have proceeded to purchase some PMs and take delivery. We are also looking at some other alternative investment options. Something to consider as an alternative to cashing in and taking a substantial penalty/tax hit.

http://www.peakprosperity.com/forum/gold-and-starting-solo-401k/37595

 

Third, and to address your questions, you might want to look into a self-directed IRA or 401K. The self-directed 401K would only work if you are the owner of your business and have no regular employees (spouse is okay as an employee, and contract workers are okay). Otherwise, a self-directed IRA (either pre-tax or post-tax) would be available. A self-directed IRA or 401K allows you multiple investment options, to include precious metals that can be kept in your possession. There are some caveats, to include restricted persons and transactions, but these seem to be a much more flexible investment strategy than a traditional IRA or 401K. I have been looking at this for a while, and decided just yesterday to begin the process. After doing some checking (online, discussion with an investment guy, etc.), I decided to go with IRA Club as the facilitator (the one who sets up the account, essentially) and IRA services as the custodian. Once opened, I'll roll in an old IRA and my current 401K, closing the later, and go from there. Both are certified by the Better Business Bureau and have A ratings with no history of complaints. I wish I could tell you more, especially that I have had success with this venture, but I'm just getting started. Still, you might want to check it out. Here are some links to get you started:

Facilitators:

http://www.iraclub.org/

http://www.nabers.com/

Custodians:

https://www.iraservices.com/

http://www.sunwesttrust.com/self-directe...

By the way, you don't need a facilitator, but the custodians won't start up an account without the help of either a facilitator or an attorney. I chose the former, as it seemed simpler and perhaps less expensive. Dennis, the owner of IRA Club, has an offer to set up one account for full price (just under $2000), and a second spousal account for half price.

http://www.peakprosperity.com/forum/precious-metals-iras/39705

 

My wife and I went through two companies, The IRA Club and IRA Services, to set up self-directed IRA accounts, one for each of us. We formed limited liability companies (LLCs) for each of our IRAs, transfered funds from our existing conventional IRAs and 401Ks into those LLCs, and those funds are now available to us in a conventional business checking account in our bank of choice (we used our local bank).

There are guidelines on how those funds can be invested, those chiefly being that any investment cannot benefit me or a family member in the present time, and that any proceeds from an investment must be returned to the account to benefit "future me" (in retirement). The investments also have to be what would be considered reasonable investments (fine wines, numismatic coins and artwork would be prohibited, for example). However, options for investment are much less limited than an conventional IRA or 401K, which would normally consist only of money market funds, stocks, and bonds. With this type of account, other investment holdings can include real estate, small business loans, and precious metals.

One huge difference between owning precious metals through this account versus a precious metals IRA like Sterling? I can take physical possession and store my purchases in a safe, safety deposit box, mattress (that would be lumpy!), etc. Of course, according to the agreement of the LLC, when I one day sell those precious metals, the proceeds of the sale must go back into my account. In the meantime, however, I have the security of knowing exactly where my investments are, and that they actually exist!

 

 

dmger14's picture
dmger14
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I appreciate all the

I appreciate all the advice.  I already contribute up to matching only.   Given the last several posts, I guess my best option would be to transfer it to a Roth to get some metals and more options on foreign currencies, but I don't think I can even do that until I'm within a few years of retirement (I have about 10 years left). 

Doug's picture
Doug
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Fed employees

I am a Fed employee over the age of 59 1/2.  I withdrew about 60% of my TSP money a couple years back and rolled it into IRAs, one Roth the other traditional.  Between 59 1/2 and retirement you are allowed only one withdrawal.  I'm not sure you are even allowed to withdraw with a penalty.  If you're allowed to withdraw, you have to pay taxes on the money you put in a Roth.  You can still borrow from the TSP.

I now wish I had withdrawn more.  I don't trust any of the funds available to TSP participants, although I made a little in the G fund (gov't securities).  I saw some stats recently that show the F fund has outperformed all the other funds during most of the crisis.  I'm not at all confident that will continue to be the case.

Good luck.

Doug

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dmger14
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Doug, I don't mind paying

Doug,

I don't mind paying taxes on the capital gains on the transfer to a Roth.  I just don't think I am even allowed to transfer it until I am within a few years of retirement.  I wanted to take it out, but if I can't do that I'd like to at least transfer to Roth.  BTW, I don't think the F fund will do well either. 

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dmger14
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Doug, I don't mind paying

Doug,

I don't mind paying taxes on the capital gains on the transfer to a Roth.  I just don't think I am even allowed to transfer it until I am within a few years of retirement.  I wanted to take it out, but if I can't do that I'd like to at least transfer to Roth.  BTW, I don't think the F fund will do well either. 

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what to do depends on each persons situation

 dmger14 whoever your name is, what I did is read carefully the rules online for the TSP plan and the tax rules for retirement plans at irs.gov to satisfy myself.  I left my government job several years ago, and therefore could roll my TSP to a personal IRA.  I cashed that out and paid penalties in early 2008 thanks to this site, but have made it more than back in other ways.  This was my choice for me because I have other retirement funds locked up with my present employer that I cannot withdraw until I do retire or quit, and that is not happening for a long time.  Since you say you have a lot of PMs already I wouldn't be too worried since you have some diversification already.

If you don't feel comfortable with ithe TSP, consider not contributing anymore to it at all, even giving up the match. Run the numbers for different scenarios- 1 is continuing contributions, getting no return on the investment, loss of value due to inflation, added value from match, offset by future taxes which might be higher than today.  Compare that to - 2, giving up the match but being able to invest or save in other ways that are more resistant to inflation, paying taxes now instead of in the future. Keep what you have stuck in the TSP in the G fund as your hedge against Deflation.

good luck Tom 

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I cashed out my 401k and

I cashed out my 401k and most of my wife's up to her plan limits. We can only get at the rest when she switches jobs.

We took the IRS penalty and it wasn't that bad. We don't have a state income tax.

All of the money from her 401k (the larger of the two) went to paying down debt. It was well worth it. Mine went to a brokerage account where I have it invested in gold juniors.

401k's have several downsides. As I have told many people, it is the investment that matters and not the vehicle. The 401k was setup to fund the stock market. They give you incentives like matching, but penalize you for wanting to move your own money. It's an obvious stock pump scheme.

They are not liquid. In the changing environment we have now, this is a serious liability. Most 401Ks have very limited options that don't change realistically that often. You have a collection of mutual funds, most of which are negatively performing over the last decade. The only thing that keeps people in these funds are the matches by their employers. In other words, the corporate complex matches to keep you investing in them even when they don't provide a good return to you. Corporates can get at least a 50% bonus to their investment in themselves by way of the 401k investment vehicle, without incentive to actually produce a return for their shareholders. Think about that for a second.

The reality is, the match is the least benefit to you in the long run because it is not compounding. Let's  say you put in $1000 every year, and the company matches that $1000. That is a steady investment of $2000 every year, earning let's say a generous average 0% return over the last decade. Now say you are one of the lucky few that gets a COLA raise, about 3% a year. So your investment grows to $2060 the second year, and so on. At best, you are up a couple of percentage points a year, but with stock market declines, most likely break-even. So you have a linear investment on a time graph.

Now, say you don't use a 401k but instead find a non-mutual fund investment with a return of 7%. Compounded, that doubles every 10 years. (Rule of 70 = 70 / 7% = 10 years to double).

Now, graph that return versus the 401k with match, and see how quickly you can outperform the 401k even with the free money. A quick hint: graph a linear curve and an exponential curve and you get a simple answer.

Even with tax benefits, a 401k with matching cannot compare to exponential gains of even a meager 7% return on investment, which is fairly easy to find in today's market place if you do your research. And, with our current fiscal issue, monies trapped in 401k plans will be taxed at much higher rates that money outside of 401k deferred investments currently are .

So even though the government-corporate cartel offers you both incentives and pentalties to keep you investing in 401ks, your best returns come from simply keeping your own money and investing it yourself.

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Withdraw 401(k)...Yes, "Easy to get 7% in this Market...Not so m

 I agree, get your money out of the Paper markets - even the penalty is ok if you think like this.  In one year the Bush tax cuts expire (your tax rate WILL go up - mine by 5%), another 12 months and the Obama Health care tax starts at 3.8%.  So far a total of 8.8%. Call it 9%. The country is starved for revenue. Desperate! Likely all of our taxes will go up somewhat 9Sales tax?, income taxes, fees?, etc.).  I'd say you are over 12% of new/addl. taxes over the next 24 months.  

So, take your 401(k) smile about paying the tax and having repositionable assets in your hands, buy some land, food, gold, pay off debt, put some cash in your mattress (6 months living expenses) get other essentials, and continue with your job and new sustainable skills development.

I'm not so sure about the Small Juniors (gold) as the way to go...it's paper.  Ann Barnhart and many others (Beck) are issuing STRONG warnings about the viability of the paper markets...

 One last thing...Where is there a relatively easy 7% out there? The risk adjusted returns are horrifying to me.

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my question exactly
Quote:

One last thing...Where is there a relatively easy 7% out there? The risk adjusted returns are horrifying to me.

Tell me where to get this kind of return reliably, and I'll dump a bunch of money in there in a hurry.

The other problem with redrob's thesis is the assumption that you will get zero return in your 401k.  In January 2008 I moved all my 401k money into treasuries and made about 2% reliably.  Not a lot, but I missed the crash which is worth a lot.

OTOH, I took a lot out in 2009 and bought PMs that have done very well until the last six months or so.

Lots of things to consider.

Doug

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Think Dividends

Right now Natural Resource Partners (NRP), which leases coal reserves to mining companies for royalties, is delivering an 8% annual dividend  (price around $26.70). They've raised their dividends steadily from $0.465 per quarter to $0.55 per quarter now. The stock price has gone down a few percentage points recently, as the price of metallurgical coal has gone down - or maybe because Jim Cramer recently said to sell all coal companies.

If you want more risk, look at Armour Residential REIT (ARR), which plays the mortgage securities game. It delivers around $0.12 per month and currently sells for $7.07, so the annual return is north of 18% - assuming it can sustain that kind of payout (it's been dropping lately).

Do your own due diligence, of course. I am not an investment advisor nor financial advisor.

Poet

Doug wrote:

Tell me where to get this kind of return reliably, and I'll dump a bunch of money in there in a hurry.

dmger14's picture
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Interesting.  David

Interesting.  David Wiedemer, in Aftershock, says that when the US dollar and debt bubble pops, the entire world will go into a depression.  All those expensive alternative energies will be more or less abandoned, and with stronger currencies abroad, there will be extremely high demand for US coal.  That is one major difference between Schiff in Crash Proof and Wiedemer.  Schiff sees other countries doing well, and Wiedemer doesn't.  They both love gold, but Wiedemer doesn't like silver as much as Schiff saying it will suffer with industry in the depression.  I have also heard warnings about shorting because the gains can be offset by loss of purchasing power.  I don't lknow any more than anyone else, but seems to me that the agriculture and mining sectors in countries with a more stable currency AND POLITICAL STABILITY would be a good place to invest going forward.  As Jim Rogers says, the growing number of people will always need to eat and wear clothes.

dmger14's picture
dmger14
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Interesting.  David

Interesting.  David Wiedemer, in Aftershock, says that when the US dollar and debt bubble pops, the entire world will go into a depression.  All those expensive alternative energies will be more or less abandoned, and with stronger currencies abroad, there will be extremely high demand for US coal.  That is one major difference between Schiff in Crash Proof and Wiedemer.  Schiff sees other countries doing well, and Wiedemer doesn't.  They both love gold, but Wiedemer doesn't like silver as much as Schiff saying it will suffer with industry in the depression.  I have also heard warnings about shorting because the gains can be offset by loss of purchasing power.  I don't lknow any more than anyone else, but seems to me that the agriculture and mining sectors in countries with a more stable currency AND POLITICAL STABILITY would be a good place to invest going forward.  As Jim Rogers says, the growing number of people will always need to eat and wear clothes.

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I would, and did...

I glanced over the answers in the thread, and agree with most. There is some good info there.

Roth is funded with after tax dollars, and IRA (traditional), 401K, 403b, etc...are funded with pre tax dollars (qualified money). You can't make transfers unless they are in like kind. You would have to take the penalties and pay the taxes now.

I stopped funding qualified money (IRA) because tax rates are lower now than almost ever. Odds are they go up from here. So, any money being hidden from taxes now will only pay a larger rate in the future. Run some models with your FA, CFP, and/or CPA.

You always want to max the free money match an employer gives if you can afford to save. However, I believe that the purchasing power of the dollar is declining, taxes will go higher, and timing the market is a fool's errand (unless that fool has insider info).

IT's only a tough call because of fear. The more you understand about the the big picture, the easier it will be to face fears.

Question's I answered before I cashed out:

  1. What are my worst fears, compared to my rose colored view. And how do I square that circle?
  2. Am I making plans based on historical norms that won't hold true moving forward?
  3. How much do I need to spend to meet my transition goals?
  4. Do I trust the market to stay solvent?
  5. How secure is my income? Will I have access to the funds when needed?
  6. Emergency fund,  is that my 401K/IRA? Uh- Oh...
  7. Without income do I have the means to not touch my retirement?
  8. At my current rate of saving is retirement even feasible? (I used to assume an income increase annually. I don't anymore. When real inflation was accounted for, my income has been decreasing. That destroyed my models. Thanks shadow-stats!)

Read, consult, and find the answers to your most important views before acting. Good Luck!!!

 

dmger14 wrote:

I have just about $350 k in my government retirement account, and fear that:

1)  I cannot protect it from losing value outright, and certainly to inflation (purchasing power), and

2)  that before long Uncle Sam will be confiscating wealth and looking hungrily at retirement accounts.

I can cash it in at a penalty, where there is a 20% withholding for taxes (presumably trued up for actual taxes per my tax filing).  Or I can cash it in, pay taxes but transfer it to a Roth IRA where I can direct investments to gold, etc. but where it would still be on the government's radar screen for confiscation/wealth tax.

Any useful advice on whether to cash it in for a single payment or transfer to Roth would be appreciated.  If I DO get a single payment, I don't plan to use it all for gold and silver, as I already have a lot and worry about the smaller chance of DEFLATION coming about, which wouldn't bode so well for PMs.

 

Thanks! 

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
Poet

Thanks for the suggestions.  I'll do a little dd and see where it goes.

Doug

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
beware high dividend yields
Poet wrote:

Right now Natural Resource Partners (NRP), which leases coal reserves to mining companies for royalties, is delivering an 8% annual dividend  (price around $26.70). They've raised their dividends steadily from $0.465 per quarter to $0.55 per quarter now. The stock price has gone down a few percentage points recently, as the price of metallurgical coal has gone down - or maybe because Jim Cramer recently said to sell all coal companies.

If you want more risk, look at Armour Residential REIT (ARR), which plays the mortgage securities game. It delivers around $0.12 per month and currently sells for $7.07, so the annual return is north of 18% - assuming it can sustain that kind of payout (it's been dropping lately).

Do your own due diligence, of course. I am not an investment advisor nor financial advisor.

Poet

Doug wrote:

Tell me where to get this kind of return reliably, and I'll dump a bunch of money in there in a hurry.

Poet,

Sometimes I wonder how much your recommendations come from a place of experience and practical knowledge as opposed to just theorizing.  We're talking about peoples' life savings here so it's very important to be cautious about what we recommend.  Do you understand why certain investments pay the high dividends they do and is that a risk you really think is wise?  Rather than just considering the absolute value of a dividend, as referenced in a recent edition of Investment Advisor I would look at future streams of cash flow available to shareholders (CFATS) to determine the real value of a business and its prospects as an investment.  Such a business might be AmBev (ABV).  The dividend yield is lower at 4.40% but the capital appreciation is much greater and more consistent, it's not as thinly traded, etc., etc.  The numbers in general are much more favorable.  While there's no absolute certainty in predicting the future of any investment, there is a lot more to consider than just the dividend yield.  Plus, Doug is at the opposite end of the financial life cycle from you.  I realize you're just trying to be helpful and I think Doug is savvy enough to know what is and isn't a good investment but someone else with less knowledge and experience might take your post at face value, due diligence warning notwithstanding.

Poet's picture
Poet
Status: Diamond Member (Offline)
Joined: Jan 21 2009
Posts: 1891
Beware Of Everything

Ao

You never cease amaze me with your condescending, seemingly obsessive need to correct others. If it weren't also directed at others, I would have taken it personally some time ago.

I was just bringing up two examples for those who felt that a 7% return was not feasible. Yes there definitely are risks and he has to do his due diligence - which includes the kind of thoughtful analysis you mentioned. (Even gold has been a great investment, but it's also followed an exponential growth curve and some deflationists believe it is in a bubble, so that's also a risk - outweighed by the risk of money printing, of course.)  But I wouldn't have just brought these two up if I wasn't myself in them.

I did my due diligence and decided they were worth the risk. NRP was first brought to my attention by the writings of Joseph Schaefer on Seeking Alpha. It also falls in the kind of natural resource play that Dr. Martenson has been talking about.

ARR definitely is more risk - anything paying north of 18% (or even 9% these days) would definitely be considered high risk, which is why I informed Doug of caveats ("plays the mortgage securities game", payout has "been dropping lately"). I have a much smaller amount invested in ARR - but for me, it is easy to buy a few hundred shares and not lose any sleep, because it is only a small portion of my overall portfolio. In the meantime, it's nice to see extra money deposited in my 401(k) every month.

Thanks for bringing up ABV. Since the stock price has twice dropped more than 16% this year before rebounding each time, it may be a good idea to wait until a market panic before purchasing. That said, although ABV is a foreign stock, luckily Brazil doesn't do dividend withholding tax.

It is not my duty (or your duty) to lay out a 10-page position paper on specific stocks or asset allocations to help protect anyone from himself or herself. Everyone knows by now that investments have risks and sometimes those risks will wipe a person out (as evidenced in living memory by the 2008 crash). I think we're all adults here.

Besides, if people had to do that level of homework every time before they posted a comment here (whether on stocks or whatever), we'd have only a tenth of the post traffic here, and there would be far fewer participants willing to jump into the discussion.

Poet

ao wrote:

Poet,

Sometimes I wonder how much your recommendations come from a place of experience and practical knowledge as opposed to just theorizing.  We're talking about peoples' life savings here so it's very important to be cautious about what we recommend.  Do you understand why certain investments pay the high dividends they do and is that a risk you really think is wise?  Rather than just considering the absolute value of a dividend, as referenced in a recent edition of Investment Advisor I would look at future streams of cash flow available to shareholders (CFATS) to determine the real value of a business and its prospects as an investment.  Such a business might be AmBev (ABV).  The dividend yield is lower at 4.40% but the capital appreciation is much greater and more consistent, it's not as thinly traded, etc., etc.  The numbers in general are much more favorable.  While there's no absolute certainty in predicting the future of any investment, there is a lot more to consider than just the dividend yield.  Plus, Doug is at the opposite end of the financial life cycle from you.  I realize you're just trying to be helpful and I think Doug is savvy enough to know what is and isn't a good investment but someone else with less knowledge and experience might take your post at face value, due diligence warning notwithstanding.

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Poet wrote: Ao You never
Poet wrote:

Ao

You never cease amaze me with your condescending, seemingly obsessive need to correct others. If it weren't also directed at others, I would have taken it personally some time ago.

I was just bringing up two examples for those who felt that a 7% return was not feasible. Yes there definitely are risks and he has to do his due diligence - which includes the kind of thoughtful analysis you mentioned. (Even gold has been a great investment, but it's also followed an exponential growth curve and some deflationists believe it is in a bubble, so that's also a risk - outweighed by the risk of money printing, of course.)  But I wouldn't have just brought these two up if I wasn't myself in them.

I did my due diligence and decided they were worth the risk. NRP was first brought to my attention by the writings of Joseph Schaefer on Seeking Alpha. It also falls in the kind of natural resource play that Dr. Martenson has been talking about.

ARR definitely is more risk - anything paying north of 18% (or even 9% these days) would definitely be considered high risk, which is why I informed Doug of caveats ("plays the mortgage securities game", payout has "been dropping lately"). I have a much smaller amount invested in ARR - but for me, it is easy to buy a few hundred shares and not lose any sleep, because it is only a small portion of my overall portfolio. In the meantime, it's nice to see extra money deposited in my 401(k) every month.

Thanks for bringing up ABV. Since the stock price has twice dropped more than 16% this year before rebounding each time, it may be a good idea to wait until a market panic before purchasing. That said, although ABV is a foreign stock, luckily Brazil doesn't do dividend withholding tax.

It is not my duty (or your duty) to lay out a 10-page position paper on specific stocks or asset allocations to help protect anyone from himself or herself. Everyone knows by now that investments have risks and sometimes those risks will wipe a person out (as evidenced in living memory by the 2008 crash). I think we're all adults here.

Besides, if people had to do that level of homework every time before they posted a comment here (whether on stocks or whatever), we'd have only a tenth of the post traffic here, and there would be far fewer participants willing to jump into the discussion.

Poet

ao wrote:

Poet,

Sometimes I wonder how much your recommendations come from a place of experience and practical knowledge as opposed to just theorizing.  We're talking about peoples' life savings here so it's very important to be cautious about what we recommend.  Do you understand why certain investments pay the high dividends they do and is that a risk you really think is wise?  Rather than just considering the absolute value of a dividend, as referenced in a recent edition of Investment Advisor I would look at future streams of cash flow available to shareholders (CFATS) to determine the real value of a business and its prospects as an investment.  Such a business might be AmBev (ABV).  The dividend yield is lower at 4.40% but the capital appreciation is much greater and more consistent, it's not as thinly traded, etc., etc.  The numbers in general are much more favorable.  While there's no absolute certainty in predicting the future of any investment, there is a lot more to consider than just the dividend yield.  Plus, Doug is at the opposite end of the financial life cycle from you.  I realize you're just trying to be helpful and I think Doug is savvy enough to know what is and isn't a good investment but someone else with less knowledge and experience might take your post at face value, due diligence warning notwithstanding.

A bit touchy when the nerve of truth is twanged, eh?  I understand where you're coming so I won't fuel the fire but that 401K might have grown a little faster following some paths as compared to others.    

http://finance.yahoo.com/echarts?s=NRP+Interactive#chart2:symbol=nrp;range=1y;compare=arr+abv;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined 

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Poet, hope you sold
ao wrote:
Poet wrote:

Right now Natural Resource Partners (NRP), which leases coal reserves to mining companies for royalties, is delivering an 8% annual dividend  (price around $26.70). They've raised their dividends steadily from $0.465 per quarter to $0.55 per quarter now. The stock price has gone down a few percentage points recently, as the price of metallurgical coal has gone down - or maybe because Jim Cramer recently said to sell all coal companies.

If you want more risk, look at Armour Residential REIT (ARR), which plays the mortgage securities game. It delivers around $0.12 per month and currently sells for $7.07, so the annual return is north of 18% - assuming it can sustain that kind of payout (it's been dropping lately).

Do your own due diligence, of course. I am not an investment advisor nor financial advisor.

Poet

Doug wrote:

Tell me where to get this kind of return reliably, and I'll dump a bunch of money in there in a hurry.

Poet,

Sometimes I wonder how much your recommendations come from a place of experience and practical knowledge as opposed to just theorizing.  We're talking about peoples' life savings here so it's very important to be cautious about what we recommend.  Do you understand why certain investments pay the high dividends they do and is that a risk you really think is wise?  Rather than just considering the absolute value of a dividend, as referenced in a recent edition of Investment Advisor I would look at future streams of cash flow available to shareholders (CFATS) to determine the real value of a business and its prospects as an investment.  Such a business might be AmBev (ABV).  The dividend yield is lower at 4.40% but the capital appreciation is much greater and more consistent, it's not as thinly traded, etc., etc.  The numbers in general are much more favorable.  While there's no absolute certainty in predicting the future of any investment, there is a lot more to consider than just the dividend yield.  Plus, Doug is at the opposite end of the financial life cycle from you.  I realize you're just trying to be helpful and I think Doug is savvy enough to know what is and isn't a good investment but someone else with less knowledge and experience might take your post at face value, due diligence warning notwithstanding.

Poet,

Here's why I made the comments I made.

http://finance.yahoo.com/echarts?s=ABV+Interactive#chart5:symbol=abv;range=3m;compare=nrp+arr;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

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