Seeking some opinions

[mbailey1234]

I was looking for somewhere to post this and figured this would be as good as any. I would appreciate some opinions, especially some "outside the box opinions."

My aunt recently passed away and my uncle is trying to decide what to do with the money from her pension as well as her 401k. I am no expert but he has been talking with me about this a lot lately. He has spoken with a couple of advisers but I get the feeling he hasn't found what he is looking for yet. I know there are some great minds on here and just wanted to throw this out there and see what you guys came up with. Never hurts hitting things from a different angle.

Here are some of the facts/opinions/ concerns we have.
She was only 62 and he will soon be 65.
He has adequate income lined up from his own retirement from social security, government pension and other investments so I don't think he is really wanting to be to aggressive for fear of losing hers.
They have one child (upper 30's) and a couple of grandkids.
The benefit can be paid out in three different ways.
1)$1270 per month for life and if something happens to him, nothing further. This isn't an option he wants to consider.
2)$1833 per month for 10 years, then it's fully depleted. If something happens to him, it goes to his kid.
3)$183,912.22 one time lump sum payment. I have figured this would have to yield 3.67% to come out to the same amount as scenario #2, so at first glance this could be the best option since I believe you can do better than that in the market.
Non of this is Non Taxable. If he were to take a lump sum payment (or any payment for that matter), I believe the tax rate would be close to 20%.
We both commented that we would be surprised if the tax rate doesn't go up in the future, so I could make an argument to get it over with and pay the taxes now.
He could roll all or part of the lump sum into his 401k or similar tax differed holding, but if you think future tax rates will be higher, why do that?
I have spoken to him about current economic issues and the whole "if you don't hold it, you don't own it" principle and although he doesn't disagree, he doesn't really believe that the collapse will occur in his lifetime. I think he would consider putting like 20%-30% of this into gold and silver as a way to leverage against inflation but no more.

So if you all were in this situation, what would you do with the money? I know a lot of you would say, cash it out, pay the taxes and buy the PM's, which I don't disagree with, but that's not going to happen here.

I am all about being diversified but frankly, the whole paper market is starting to scare me to death. He has no need to risk losing it in the paper market so why not just preserve the buying power of the money he has and so what if it doesn't return much. In that case, I would much rather see him invest in PM's than government bonds or CD's.

We also have done some checking on annuities but there are some companies out there that don't look to financially secure. If you buy into a 10 year right now you can lock in 4.8% fixed but if the SHTF, there are huge penalties for early withdraw (if you get the chance.) Jackson Financial had the best offering I could find on an annuity.

Everything comes back to the argument of what is the risk of physical (lower) vs paper (very high) in my book so I am having a little trouble keeping an open mind about other options.

Please feel free to chime in with any opinions, tax savings ideas, etc. He has about 60 days to decide what to do with it but we are still researching and trying to get multiple opinions at this point.

[dannan14]

i not really qualified to address all the issues in your post, but there are a few things i can throw out there for you. First, the 20% on a lumpsum distribution is the Federal Withholding. The actual tax will be at your Uncle's marginal tax rate. Also, he should be able to roll the funds into an IRA. In that case it would not be taxable. However, if higher futures tax rates are a concern, then a Roth IRA may be the way to go. With a Roth you pay the taxes now and qualified distributions are tax free. Qualified generally means that the distribution happens more than 5 years after the Roth was funded.

Your Uncle's financial advisors have probably discussed this as one of his options for the 401k. i don't have a lot of experience with defined benefit plans (pensions) so there may be some exception in this case that i am not aware of, but a rollover to a Roth (or Traditional) IRA should be an option for the pension as well.

So, a Roth IRA with a custodian that accepts Precious Metals may be worth researching. i am currently looking for an for the right company to open a PM IRA for myself as i have a 401k from a former employer that i haven't done anything with yet. i also have not yet answered the Roth or Trad question for myself, but there is a great deal of good info our there. Google Precious Metal IRA and you'll get more hits than you could ever want.

[68Camaro]

No doubt what I would do - as I've done something similar.

First step - Take the lump sum and pay the taxes now, take delivery of the funds.

Second step - whatever you can convince him to be comfortable with, but for him at his age I would have him pay off any urgent high-interest debt, ensure his other affairs are all in order (adequate housing, meds, transportation, food) and that he has some stores in the event of an emergency.

Third step - Put 5% in literal cash in a safe, 5% in checking, at least 40% in gold (for him more like 60%), and the balance in physical silver. For the physical cash/PM he will need (ideally) an in-ground concreted safe. Put the held cash, 90% of the gold and 30% of the silver in there. Put the balance of the gold and silver in a safe deposit box located in an easily accessible institution less likely to fail or have major issues (local credit union, or high reliability non-US parent bank).

[68Camaro]

Having said the above, if he's completely resistant to focusing on PMs, I would focus anything he won't put into the above on dividend paying core stocks that tend to be able to weather financial turbulance: perhaps Proctor and Gamble, Johnson and Johnson, Coke. Others may have other suggestions. Absolutely no bonds. If you're unsure, look at the performance of the things would consider buying during 2007-2009 and see how far they fell and how quickly they recovered, and what their dividend, stock buy-back and insider trading history has been.

Just my 2 cents. I personally think we're in for a horrible 10-20 years ahead, hyperinflation of the USD, it's eventual collapse and replacement with some other new currency (perhaps not US based), never before seen issues, even if there is no SHTF collapse, and trying to plan for those issues based on past financial advice and history is inapplicable, so conventional advice is worthless.

[mflugher]

For those of you that don't know me, as I haven't been active much especially since summer... I own both a "we buy gold" business and a Retail tax business (think HR block, but not them) actually 2 locations of each. So while I'm sure I'm not the smartest man in the room on these subjects, I have put some time into researching them for personal and professional reasons.

Suggestion...


If you want to go to Roth IRA but are afraid of the Lump sum distribution... Here is a course I would take, I have encouraged my parents to do so in the past before they retire...

1. Roll over entire pension into Traditional IRA (no tax consequense if you follow the rules correctly)

2. If he continues to earn an income (not draw a pension or SSA but earn an income) he may Roll over up to 100% of his earned income per year into a Roth IRA from the Traditional IRA by paying the tax on the smaller chunk per year. This wouuld require you to hire him to do something for you on paper at some salary (which he could gift or loan back to you if you and him agree) or get a job as a greeter at wal mart or run a small business, does he like gunsmithing or gardening? he could throw a few hours a day into something like that and earn a small income on a hobby, as long as he is making some money.

3. once he is 62 (which I believe you have stated he already is) he may withdraw all of his IRA at any time (roth tax free) (Traditional at his current marginal tax rate) at any time, if his IRA happens to be in PMs he may take physical delivery of the PMs depending on how he chooses to invest in them instead of having them liqudated and taking cash.


Now I personally would take such a windfall and stack about 25 oz worth of fractional AGE's but I have sources to get them at 1% over spot or trade the gold I've bought off the street for them, I wouldn't get caught up in huge premiums for fractionals if it was a problem getting them at a reasonable discount. Go for AGE 1 ozers if needed. I'd probably take about another $35k and invest it evenly in junk silver coins and ASEs once again though I personally wouldn't pay the premiums that some metals companies require or I'd discount them by buying on dips. Once I had that, at least at todays prices I'd consider my stack fully stacked up. I would take the balance (aprox $100k) and invest them in my businesses and expansion, my businesses both love this recession, so times are actually pretty good for me. I'd trade my own personal sucess for a stronger country with better core values, an economy based on real value instead of paper, and less checks being moved from one person to another by the government, If we were in that world I'd happily trade my businesses for a job at a factory or whatever.

Why AGE/ASE/Junk? Because all this stuff has face value recognized by federal govt. and I can use that to play great tax games... Thanks for inventing the modern bullion coin system Ron Paul


Below is an example of some of your options when using these tools, I used AGE as an example, but I assume you are all smart enough to figure out how to do the same thing with Junk silver/war nicks/ASE's, and if you aren't you shouldn't even think about attempting something like this as this is very controversial and may involve some fighting with the IRS. However there is case law to support doing these things as well.


1. an oz of gold (ase) has a face value of $50, we could take your uncles entire pile of money roll it into traditional IRA and based on 1700/oz gold he has 100 oz or $5k face in physical gold.
2.He could then Roll over the traditional IRA to a roth IRA at the $5k value by basically asking your brokerage house to reclassify the IRA without selling the investment.
3. He could then sell the gold from within the Roth IRA at the capital gains tax rate (0 within a roth IRA) and buy whatever stocks or more traditional investments he was so inclined to. Alternitively he could then distribute the IRA to himself one ounce of physical gold at basis value $1700 (paying the capital gains from within the ROth IRA) then he would be responsible to pay any capital gains/losses on future increase/decrease in value of gold based on the $1700, so if he sells @ $2k gold he would owe cap gains at $300, short term @ your current tax rate, or if he held for more than a year 15%(this year) or 20%(next year without congressional change which I don't think will happen under Obama) based on current tax law which of course is subject to change at any time.


Any way I gotta go, Keep in mind these are highly controversial techniques at least the ones using ASE/AGE/Junk silver, the ones above not involving PMS are pretty mundane and doable by any financial advisor

[beauanderos]

No doubt what I would do - as I've done something similar.

First step - Take the lump sum and pay the taxes now, take delivery of the funds.

Second step - whatever you can convince him to be comfortable with, but for him at his age I would have him pay off any urgent high-interest debt, ensure his other affairs are all in order (adequate housing, meds, transportation, food) and that he has some stores in the event of an emergency.

Third step - Put 5% in literal cash in a safe, 5% in checking, at least 40% in gold (for him more like 60%), and the balance in physical silver. For the physical cash/PM he will need (ideally) an in-ground concreted safe. Put the held cash, 90% of the gold and 30% of the silver in there. Put the balance of the gold and silver in a safe deposit box located in an easily accessible institution less likely to fail or have major issues (local credit union, or high reliability non-US parent bank).

How good is your relationship with him, Mike? Rich has some good advice above, but what I'm gonna suggest now may strike some as unorthodox, but I think is your best solution. After he has distributed his money in the fashion noted above, have him give YOU the remainder in the form of a fixed rate loan that is above what a CD would bring. YOU take the money and invest in more precious metals, before hyperinflation kicks in, and continue to make payments (twenty year note?) at an agreed upon rate, no faster, with increasingly less costly fiat currency. Win/win. He gets the security of a "family annuity" with an institution that's unlikely to fail, you get a low rate, fixed interest loan that you may not have to pay off in full if his health becomes an issue.

[68Camaro]

Ray's suggestion, or a variant of it, may overcome some objections from your uncle. Since the object of this is not for you personally to get rich, if hyperinflation makes his return from your arrangement such that he will later wish he had the PM instead, it is your choice to considering honoring that, and you could give the PMs (especially if in form of US coin) back to him as a gift at a later date.

One reason I would suggest not to wring hands too long is that I believe we are currently inflating significantly - though it may be a bit difficult for some to see it, in part because they see what they want to see, and because not everything inflates at the same time, and/or at the same rate. Precise timing is impossible (I was clearly wrong on timing of silver price in late 2011, though I always provided caveat to that). But I believe we will see significant inflation in 2012 as measured by price of gold and silver. Keep in mind that when gold hits 2400, it won't be so much that it has gone up in price, but that the dollar will have lost 1/3 of its value since mid 2011.

If you wait too long trying to figure out how to save 20% in taxes, you may have in the meantime missed a 40% rise in PMs, making that attempt to optimize self-defeating.

Just 2 cents. DYODD.

[mbailey1234]

Wow guys, lots to think about.

The most interesting thing that has caught my eye so far is the concept of buying gold with the money while it is in a traditional IRA, somehow rolling it to a roth at $50 per ounce to pay minimal taxes and then distributing it or reinvesting it in stocks once it's in the roth. This sounds too good to be true at first glance. But if it is possible, lets definitely explore that one!

Ray, I personally wouldn't feel to comfortable with doing an annuity for him and investing his cash in PM's. Although I don't disagree with your predictions, by doing that I am saying that PM's couldn't crash. If they did, I wouldn't be able to repay him. Although tempting, I'm not willing to gamble with his money.

Thanks for all the ideas, keep em coming!

[68Camaro]

When someone survives a documented audit with that approach I'll feel better about it...

As to other thoughts, I'm all about having it as close to you as reasonably possible. If he buys stocks, I recommend actually posessing the physical stock certificates, these days. Old school, but harder to take from you... In the case of IRA gold, I'm not sure where that gold actually resides - I had supposed with a third party, but if you're allowed to have IRA gold in your physical possession I would like to see the reference to that.

[dannan14]

... In the case of IRA gold, I'm not sure where that gold actually resides - I had supposed with a third party, but if you're allowed to have IRA gold in your physical possession I would like to see the reference to that.

You're correct, you can't have possession of the PMs in your IRA. They must be held by a custodian.

[Engineer]

I'd pay the taxes now and spend most of the money on things I could physically touch. Tax deferred investments seem nice on the face, but I'm very skeptical about rates staying this low for very long. I'm also horrified by the idea of keeping all of my retirement eggs in a basket where politicians can change the rules of the game. If DC gets desperate enough, there isn't much in the way to stop them from forcing 401Ks or IRAs into government bonds and raising the withdrawal penalty to 20% like they did with health savings accounts.

My advice would be to spread the money around, and do your best to keep it out of accounts controlled by the government. Put some into physically held metals, keep some in physical cash, a little more in the bank, look into some land or a house with a low property tax rate and/or a state without income taxes as a place to claim residence for tax purposes. State taxes are much easier to avoid than federal taxes, and you can do it legally with a little planning.

Before you even consider taking risky approaches with the IRS to avoid taxes, make sure you have ample cash on hand in case they freeze your accounts.

[HD-Daddy]

Some very Interesting advice! Have you looked into a Checkbook IRA? He maintains control(close to chest) and he can buy many things that were mentioned above. He could do this and deferr taxes and Control when he does pay taxes. Converting to Roths would be a goal also.

[mbailey1234]

He owns his house, has no credit card or vehicle debt, medical expenses are paid, all the funeral expenses are paid, including his for the future. I would say he has no debt at all. If you pay the taxes and roll most of this into a Roth, isn't there a 5 year waiting period before you can withdraw without a penalty? I don't see any reason why he would need it unless you saw a true SHTF situation and wanted to bury it in the back yard. He will be 65 in April and doesn't act like he is planning on getting a job or anything. So no "earned" income will be coming in, just social security and his pension. Kind of surprises me a little since they always lived so simply! Guess those are the people with all the money in this country (something to be learned there.)

I don't know anything about trusts. He has been talking about this today some and I think he may be considering setting something up for his son and his two grandkids. Same issues though, it's still going to be on paper in some way shape or form! How much can you give to your kids and grandkids and if done correctly, can this result in capital gains tax savings? He said he would much rather set something up for them than to waste it away in a nursing home someday.

One thing we did accomplish I guess is we both totally agree that although the tax rate may not change anytime soon, if it does, it will most likely be increasing, not decreasing. So basically, why not just pay the taxes now?

A question I would be asking the tax pros is if he pays the taxes on all of that now and he dies in 2 years, what kind of taxes will his son have to pay on the inheritance? If you inherit funds from a Roth IRA, is it available right away at no penalty or would the person receiving the money have to roll it into a similar Roth and wait until 59.5 to be able to withdraw without penalty?

Thanks for all the ideas. I will update what he decides to do. I bet there are more people out there facing these decisions than we realize.

[68Camaro]

When you inherit an IRA you have immediate access to the funds - you just have to pay whatever taxes would be owed, and for that you do have several limited options on how to withdraw. Lump sum, or spread out over (I believe) 5 years.

[mflugher]

http://fairmark.com/rothira/inherit.htm

Good link re INheriting Roth IRAs.

As far as where the gold resides when in an IRA, its held by brinks or morgan stanley or whatever brokerage house you choose. however once you turn 62 you may withdraw any or all of it at any time. If you bought a stock like Psilver or if you went thru Monex and got a gold ira, you could theoretically withdraw the gold instead of selling the gold to withdraw the cash. As far as actually withdrawing a 1 oz round from either of those places and reporting it at face value I've never tried it, but I do take a lot of my profits from my gold business at face value instead of taking the cash.

[theo]

Having said the above, if he's completely resistant to focusing on PMs, I would focus anything he won't put into the above on dividend paying core stocks that tend to be able to weather financial turbulance: perhaps Proctor and Gamble, Johnson and Johnson, Coke. Others may have other suggestions. Absolutely no bonds. If you're unsure, look at the performance of the things would consider buying during 2007-2009 and see how far they fell and how quickly they recovered, and what their dividend, stock buy-back and insider trading history has been.

Just my 2 cents. I personally think we're in for a horrible 10-20 years ahead, hyperinflation of the USD, it's eventual collapse and replacement with some other new currency (perhaps not US based), never before seen issues, even if there is no SHTF collapse, and trying to plan for those issues based on past financial advice and history is inapplicable, so conventional advice is worthless.

Agreed. I also would try to get him into energy stocks, specifically oil and natural gas. Look into agriculture commodities as well. Focus on solid dividend paying companies with a strong international presence. You'll, of course, need professional guidence for this.

To the extent that you can get him into physical PMs, I'd split the money evenly between gold and silver (basically what Camero said). This will ensure that he has something to pass on to his son and grandchildren tax free. The government can't tax what it doesn't know about.

I agree on the 5% physical cash, but see if you can get some of that in nickels. He'll have the protection of cash face value and an adequate inflation hedge.

This is turning out to be an excellent thread!

[mbailey1234]

http://fairmark.com/rothira/inherit.htm

Good link re INheriting Roth IRAs.

That was a good link. Thanks for posting!

[OneBiteAtATime]

I'm of a slightly different mindset. I agree that if you cannot put your hands on it, you don't own it. I'd take the cash. I would buy 5-10 acres of productive Iowa fields attached to several acres owned by a good farmer who would rent my ground or sharecrop with me. In this way, if your uncles family needs somewhere to grow food in difficult days to come - they have somewhere. If things chug along like "normal" the land will produce an acceptable income. I believe the ground can be placed in an IRA if it has to be.

Hopefully your uncle has a cash horde, but if not, I'd set aside $20,000. I'd $40-50K of Small Denomination PM. If there was anything left, I think I'd buy that bass boat, or fixer-up 60's muscle car to tinker with, the brand new shotgun I've always dreamed about, or spend some $ on my kids, whatever it is that made me smile.

[mflugher]

I agree that if you cannot put your hands on it, you don't own it. I'd take the cash.

Agree that physical possession is better, however I'm not so sure shtf is in the near term future, I belive in hyper inflation and possibly Comex going underwater as far as precious metals go, but Psilver and some of the other more reputable gold IRA companies I do believe actually have over 80% of the gold on hand to distribute it it were needed. The tax consequenses of the PM Roth IRA or any Roth IRA for that matter are in my opinion a better choice for some of your funds...

Having said that it is my medium range goal to have at least as much in physical as I do in the IRA $ wise within 4 years. I've been stacking my IRA for 7 years now, I only started stacking physical 7 months ago.... so I have a little catching up to do, the yearly limits on IRA contributions however will let me do so quickly I imagine.

[mflugher]

after re reading the original post I think I have to agree with theo...

Energy stocks, utility companies, BP specifically (highly undervalued) and other proven dividend earners are more likely what he is looking for. If you think you can break that magical 3.7% mark self directing, go IRA, otherwise take the 10 yr distributions and invest the excess as it comes out. Of course human nature being what it is if your monthly income is $1800 more you are very likely to find $1800 more in expenses to offset it, bigger house nicer car whatever.

Bottom line, he is getting up there in age and I'm not a believer in inheritances, I've already instructed my parents who are close to the same age that I don't want anything and I want them to spend all their money before they die enjoying themselves, if they run out I will support them though I doubt they are the kind of people who will be able to spend what they have which is a good bit but not nearly out of the question, they taught me that... If they run out I will make sure they aren't eating cat food and collecting cans to buy their medication. i'm all for collecting cans though too


This plan should work for him in the next 10 yrs or so, I figure within 30 years when I'm thinking of retirement, either the democrats will find some way to tax or confiscate IRAs and replace them with a "guarunteed govt pension" or alternatively the republicans will go to a Flat sales tax in which case all the tax deferral in IRA will go caputt... either way I use my roth IRA for what I consider to be high risk speculation and market strategy testing and I keep my real retirement a little closer to home and a little more tangible.

[Engineer]

I figure within 30 years when I'm thinking of retirement, either the democrats will find some way to tax or confiscate IRAs and replace them with a "guarunteed govt pension" or alternatively the republicans will go to a Flat sales tax in which case all the tax deferral in IRA will go caputt... either way I use my roth IRA for what I consider to be high risk speculation and market strategy testing and I keep my real retirement a little closer to home and a little more tangible.

Nicely put.

[mbailey1234]

Well we went to speak with a local financial adviser today. Guess we are looking at things all wrong. His advice... short version.... The economy is growing, large corporations are sitting on loads of cash (not because they are scared about the future though ) No need to invest in anything differently than the last 30 years because long term, the trend is still up. Oh, and most importantly, if you buy gold or silver, that stuff is worthless! Needless to say, he won't be getting much of my business!

He also didn't recommend rolling ANY into a Roth IRA. Just pay the taxes as you cash it out. He didn't think the capital gains rate will go up and if it did, you would have time to get it rolled before it did. He validated his opinion by saying that if you pay the taxes on it and then lose half of it, you would have paid taxes on a lot more of the sum than you needed. (I guess I can see that point of it.) My thoughts were, he has probably seen this happen a lot if people are listening to his advice!

Annuity option is now out. To many stipulations involved as well as penalties for early withdraw.

He seemed to be totally focused on the fact that "private" businesses will succeed. I feel that they possibly can, but not if the government is going to fail. Am I prioritizing this in the correct order? If the government can't succeed, then how can anyone else. And this comes back to the original thought of how we can't keep running this machine (the government) like we are forever. Something has to change.

Basically a wasted day but at least we can check that one off the list! I hope everyone we go and speak with aren't thinking like this.

We talked on the way home and if nothing else for now, he has decided to get things transferred into a money market account. At bare minimum this has to be done (the transfer that is). Then he can still withdraw it or reinvest it in whatever he chooses.

[68Camaro]

That's the standard investment advisor line. Expected *nothing* else from that.

More important, what did your uncle think of it. Was he as skeptical as you? If so, that's a GOOD thing.

Oh - BTW - equities WILL go up, for awhile. Money printing is GOOD for the stock market. Until it all collapses.

[mbailey1234]

"Preserve and diversify" is probably the best way to sum up his thoughts. Since he already has a large part of his net worth tied up in his own retirement/investment and it's mainly on paper, I know he is leaning toward a fair share of this going into PM's. I think his gut is pulling him in the correct direction but when I hear him say things like "Hard to imagine $100,000 would only be about 3.5 pound of gold" I know it's somewhat of a, culture shock, for lack of a better description.

I need to start investigating the best place, as well as the lowest cost place, to start snagging some fractional gold. The 1 oz silver doesn't bother me but the gold I would like to have some smaller pieces than the full oz coins at the least premium possible.

[68Camaro]

Here's a possible source of 1/10 oz gold rounds, using the Daniel Carr designs. Carr seems to be sold out of his smaller ones, but Emslie (PG&G) may still be coining them. I've got some of them, as do a few others here. If actually available, they are listed at $185, which isn't much above current spot.

http://www.prospectorsgoldandgems.com/r ... vices.html

http://www.dc-coin.com/pioneergoldcoins.aspx