What to do with IRA money?

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goes211's picture
goes211
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What to do with IRA money?

This is just something that has been bugging me lately. 

I am very concerned about some money ( around $100K ) I have in an IRA.  I am around 20 years from being able to touch that money without penalty but I have serious doubts that it will have any value by the time I get to freely access it.  Luckily around 2 years ago I moved it to cash before the market tanked, because I could see the writing on the wall.  I have missed out on the recent rally but I have no desire to jump in at this point.  I figure I have a few options but I can't decide which is best.

1) Leave it alone.  It may be in worthless USD but I still have a mortgage that is larger than that so if it goes to zero, so will my mortgage.

2) Use the money to strategically buy commodities or foreign/domestic equities as hedges against inflation.  There is also a option at the end of 2009 or 2010 to roll it into a Roth IRA which may or may not be worth considering.

3) Bail, take the money and run.  This would be costly ( probably 40% up front ) but at least I could own something solid that should not go to zero.

My only real debt right now is my mortgage, so I don't have any immediate needs.   My job is secure for another year but after that, who knows.  Lately I have been doing a little of #2 just making short term bets and taking them off when I don't like what I see.  I consider doing #3 to be quite radical because I would be taxed to death on it but sometimes it feels like such an obviouse choice when I think about our long term situation.

Any opionions?

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suesullivan
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Re: What to do with IRA money?

Joel, I have the same dilemma, same time frame as you.

I've so far taken out our Roth contributions tax-free, and taken out enough money last fall and this spring to bring us up to the top of the current tax bracket in each tax year (we're underemployed home-schooling parents, so we're in the lowest tax bracket. Total hit to us so far 15 percent plus 10 percent penalty.)

I'm wavering over whether to pull out another $70k this year, which would be taxed at 25 percent+penalty.

I'm absolutely certain that taxes will be higher than 35 percent for us before we retire, and while I could try to hedge against inflation, I don' t know if would even be possible to invest to beat currency collapse. Not to mention the occassional suggestion about semi-nationalizing retirement plans.

It's occurred to me to try to seller-finance a purchase of homestead land, offering the seller a chunk of the money we've already taken out as a downpayment, and $20k a year for the next three or four years from measured withdrawls of our IRAs.

I'm holding off on pulling more money out at the moment (what is already out is about 75 percent PMs/25 cash right now), but I'm watching for federal action on "modifying" IRAs or raising tax rates closely.

Several folks on the boards have written that they liquidated completely, taxes be damned, and that doesn't seem crazy to me at all any more.

fwiw,

Sue

Doug's picture
Doug
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Re: What to do with IRA money?

Joel and Sue

I'm in a similar quandry, but am much older than either of you apparently.  Like Joel, I pulled my employer retirement account (basically a 401K) out of stocks in January of 2008 and put it all in gov't securities.  That was the single luckiest financial move I've made.  Then this past January I rolled about 60% of that money into an IRA.  Part of it I put in PM's through a self-directed IRA.  There are a number of "custodians" where you can set up such accounts.

Joel, you mentioned putting money overseas and in commodities.  I've got a couple ideas.  PM me if you wish to discuss.

As far as taking money out of an IRA, I would be very hesitant to do that if there is an investment vehicle or capital preservation fund where you could park that money in an IRA.  Rolling it over into a Roth may be a good idea if you can afford to take the tax hit at your current tax rate.  I like Sue's strategy of taking incremental tax hits at 15% rather than one big hit at a higher rate.

Doug

ao's picture
ao
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Precious metals IRA?

Why not put at least some of the IRA money into a precious metals IRA.  You'll have to pay annual fees and storage costs but for me, they're worth the expense and are a very small percent of what I have in that account.  Most large precious metals dealers can set up such an account for you.

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fortytwo
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Re: What to do with IRA money?

I've been struggling with this issue for over a year for myself, family and clients.  I started doing some research and found several custodians who allow you to buy 'alternative investments' with your retirement funds (IRA, Roth, Education and health IRAs-  they will even custody 401k's if you could get your employer to offer it).

The term 'Alternative investments' turned out to be a far broader category than I had ever imagined.  They can 'securitize' any manor of contract, agreement or asset.  This included making loans to friends and family, funding a startup, buying real estate, rental income properties, precious metals, foreign investments- both currency and businesses / real estate.  The primary thing to research is the rules about 'prohibited transactions' which are generally available on each company's website.  They can be a little complicated, but there are people out there who can help. Google terms like 'real estate ira' or PM me for ideas.

This discovery got me thinking about several things.....

1-  I believe that most 'traditional' investments offered by a financial advisor will not do well going forward because they are ultimately predicated upon the unsustainable growth of the economy.  This means that if you want to preserve your wealth you either need to learn to trade, so as to make money in any market,  or find other investments outside of the stock market.

2-  Maybe you can get a better 'return' on your money by focusing on what value you get out of where you put your money.  You could buy a duplex and make sure that the rent stays cheap for people who are close to you.  Maybe you 'fund' a CSA or other small business that would be important to have around as things unwind.  You now function as the bank- you can allow them to be late on a payment or two, or reduce payments in exchange for something....  

3-  Get your kids out of debt.  Especially these horrible student loans.  Make a loan to them, and give them flexibility in paying it off.  If things really go downhill fast, you'll appreciate having family that isn't stuck in a debt trap and can work with you on the invisible economy.

4-  Buy something sustainable, like forest land and just never develop it.....  At least you've kept it off the market.  

I spent the last 15 years trying to figure out how to grow the size of an account,  but I am rapidly changing my mind about what that means.... 

 

 

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EndGamePlayer
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Re: What to do with ??? money?

We've been thinking about this too. - What to do with what we have now?

We have  "bought the farm" to support our "after WTSHTF life" and we have the main supplies we will need for us and to support those around us with starter seeds and small livestock, and hopefully we'll be able to sell goods after TSHTF. But what to do with what i$ left of our funds?

Some places I thought about stashing it were:

1) forgien currency as I think there will be at least 1 safe haven country, maybe China, Swiss or Canadian?

2) Stock up on goods that will have value after TSHTF (chocolate, sugar, salts, spices, warm clothing, alcohol/beer, pain killers, and such).

3)  Buy a bunch of wind generators and supply our own power as well as sell it.

I'm very open to ideas and liked the idea of buying land just to keep it off the market, but unfortunately I will have to leave that to Ted Turner and other wealthier people.     Looking for ideas- EGP

 

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bluebird
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Re: What to do with IRA money?

I too am struggling with this issue. Currently my IRA is in the Vanguard Treasury Money Market Fund. While it contains only short term Treasuries, it is a money market fund, and how safe is any MMF? If I withdraw it, there is the tax penalty, and then what to do with the cash? Everything is paid off, yay!, I suppose I could pay off my kids credit cards. Then park the rest of the cash in TreasuryDirect.gov , buying short term Treasury Bills.  In the meantime, with the regular savings account money, I have been withdrawing it to buy canned foods, sugar, warm clothing, pain killers, toilet paper and cans of peanuts. Except spouse has been eating up peanuts. Next on my list is a water filter and a wood stove. Precious metals could be useful sometime in the future, but currently I prefer to get the items that are going to be needed and useful after TSHTF.

ao's picture
ao
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End Game Player

End Game Player,

I would use it to hedge my bets that TS never hits the fan.  I would heavily bet that the apocalyptic SHTF scenario that many are anticipating on this forum will never happen.  The Roman Empire took hundreds of years to fall.  It was more of a crumble than a collapse.  Except for when foreign conquerors flooded into a country en masse (which I have a hard time envisioning happening within my lifetime in America), other empires almost never abruptly crumbled to the stage you may be anticipating.  Be prepared, for sure, but also remember that one contingency to be prepared for is the one that TS never hits the fan.  It may well be more of a slow fade rather than a fast fall.

Sorry for the confusion with the other posts.  This is what happens when you get distracted by dogs and kids.;-)

 

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Davos
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Re: What to do with IRA money?

We looked into funds that offered the ability to take paper sell it buy (physical) PM and have it held.

We took the hit - we are mid forties and this wasn't the bulk of our savings, so this wasn't a tough decision.

To me taxes and less was better than nothing. This is and was drastic, but we have little faith in a system that is a house of cards. Best luck with what you decide. Take care.

goes211's picture
goes211
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Re: What to do with IRA money?

Thank you for the replies.

AO mentioned a Precious Metal IRA.  I did a little investigation of those and I am not sure it will do what I want.  Because there is no way to take physical possession of the IRA's contents, you are left at the mercy of custodian or government malfeasance.  I think I could get most of the same benefits and risks with ETF's.

Because I am in my peak earning years, and consequentially a very high tax bracket, taking the money out will be at such a high penalty that unless things look very dire, I am probably better off just waiting a little longer.  Like I said earlier, I do still have a fairly large dollar denominated mortgage (fixed for 30 years at 4.625%) that is larger than my IRA, so in some ways my inflation risk is already hedged.

Does anyone know more about rolling IRA's rollover into Roth IRA's?  I heard that there was a law change and that the end of this year there would be a onetime opportunity to rollover without penalty and reguardless of income level.  Because of my tax bracket, I am not sure that this would be worth it because I would have to pay the additional taxes up front but I also heard that they could be split into two years.  Just a thought.

ao's picture
ao
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Re: What to do with IRA money?

joelw,

Read the prospectus for the GLD ETF.  There's a lot more risk than the physical gold IRA.  Also, depending upon the amount of what you have in the account, the expense ratio of the ETF may wind up being lower or higher than the charges and fees associated with physical gold.  For a larger amount, the percentage spent on storage charges and fees is less than the expense ratio for the ETF.  As you've noted, having a custodian hold your gold does entail some risk and it'd be wise to hold gold outside of a retirement account as well to hedge your bets.

I'm no tax expert by any means but wouldn't being in a higher tax bracket disqualify you from a Roth IRA?

Morpheus's picture
Morpheus
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Re: What to do with IRA money?
suesullivan wrote:

Joel, I have the same dilemma, same time frame as you.

I've so far taken out our Roth contributions tax-free, and taken out enough money last fall and this spring to bring us up to the top of the current tax bracket in each tax year (we're underemployed home-schooling parents, so we're in the lowest tax bracket. Total hit to us so far 15 percent plus 10 percent penalty.)

I'm wavering over whether to pull out another $70k this year, which would be taxed at 25 percent+penalty.

I'm absolutely certain that taxes will be higher than 35 percent for us before we retire, and while I could try to hedge against inflation, I don' t know if would even be possible to invest to beat currency collapse. Not to mention the occassional suggestion about semi-nationalizing retirement plans.

It's occurred to me to try to seller-finance a purchase of homestead land, offering the seller a chunk of the money we've already taken out as a downpayment, and $20k a year for the next three or four years from measured withdrawls of our IRAs.

I'm holding off on pulling more money out at the moment (what is already out is about 75 percent PMs/25 cash right now), but I'm watching for federal action on "modifying" IRAs or raising tax rates closely.

Several folks on the boards have written that they liquidated completely, taxes be damned, and that doesn't seem crazy to me at all any more.

fwiw,

Sue

 

Sue. Are you suggesting that the government would change the rules in the middle of the game so as to better advantage the government?

Representative governments of the people, by the people, and for the people don't do such things.

ivoryjackal's picture
ivoryjackal
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Posts: 88
Re: What to do with IRA money?

I consider my Roth IRA to be speculative/fun money at this point.  Basically that it's 'already gone' and I'm taking risks here and there with it (of course it would follow I've been fairly wildly profitable over the past year).  I don't have nearly that much in it and I figure if I make any reasonable amount over the next few years, I'll liquidate it into a home down payment (which is one of the ways it can be broken without penalty - yes, this would be a first home for me).

That said, I've allocated a percentage of it to 'gold and silver'.  No, not GLD or SLV or any of the other etf's and not a special bullion account.  I've bought GTU and CEF (both are properties of the same company, run by Sprott investment group's head guy, I believe, GTU being entirely gold bullion and CEF being a mix with weight towards gold).

Both of these properties buy and store physical bullion and provide (quarterly, I believe) third party accounting of bar serial numbers and overall weight. As far as a person can tell from miles away, these are legit funds.  They don't track the prices directly, though the value rises and falls pretty much in synch.  This is because they don't pretend, like GLD, that you're buying a one-for-one piece of gold with it, and there's acutally a time lag between getting funding and going out on the market and buying the metal (as one would expect from a legitimate fund).  They do sometimes have discount drops in price when they issue new stock - this is done in conjunction with the purchase of a large amount of bullion I believe.  These are good times to buy in.

As always, research for yourself, but hopefully this points you in a direction that's fruitful.

Daniel

goes211's picture
goes211
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Posts: 1114
Re: What to do with IRA money?

AO,

I understand that ETF's like GLD and SLV have a fair bit of risk and there has been a fair bit of speculation that they don't actually have the metals to support their capitalization.  What they do have is convienience and high liquidity but I can not say that makes it worth the risks.

As for the Roth IRA, it is true under normal circumstances those in higher tax brackets are excluded from participation.  My understanding is that due to a law change,  their is a one time opportunity at the end of this year to roll a regular IRA over into a Roth IRA without penalty and without income restrictions.  The income can be claimed over two tax years.  Of course, as with everything government controlled, the rules may be changed (retroactively) so keep that in mind.

Google "roth IRA rollover 2010" to find out more.  I was hoping that someone around here might be more familar with the mechanics.

builder's picture
builder
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Re: What to do with IRA money?

I have pulled all IRA money out of the stock market. I have recently invested these funds in with a couple of local limited partnership here in the Houston area that has bought apartment complexes. These are older larger complexes built around 1980 with @ 200 units each. There is a seperate LLC created for each apartment purchase. We used a company that specializes in self-directed IRAs to funnel the funds to these transactions. There is an average of 20 people insvested in each of these transaction with a minimum investment of 100k. I really think that these older class C or B type complexes are a good investment since they are the lowest level of decent housing for working people. The projected rate of return should be 7% to 15% with a sale of cash out refinance in 5 to 7 years.

Here is the link to the local real estate investment group in Houston: http://www.luinc.com/

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