Taking money out of retirement funds to purchase cards

[ullmandds]

Originally Posted by raulus

What about the juice? Do you think the consignor kept the bidder’s 20% premium?

I would imagine the consignor got part of that

[raulus]

Originally Posted by ullmandds

I would imagine the consignor got part of that

What percentage would you estimate that they got? 25%? 50%?

[ullmandds]

Originally Posted by raulus

What percentage would you estimate that they got? 25%? 50%?

If he did not get half of the buyers premium I say he did himself a disservice

[raulus]

Originally Posted by ullmandds

If he did not get half of the buyers premium I say he did himself a disservice

OK. Let's assume the seller got 75% of the buyer's premium, and zero listing fees. You and I aren't going to get this deal when we sell our items. Last time I consigned with this AH, they kept the juice, and I paid 7.5% listing fees. But let's just roll with this generous assumption for now.

So the sale was for $10.5M, with a bidder's premium of $2.1M, total of $12.6M. If we assume that the seller keeps 75% of the bidder's premium, then the seller nets $12.075M.

Now to the fun part - paying taxes. The seller's basis was $50k, which is well known. The gain is therefore $12.025M.

The feds get 28% for capital gains on collectibles. Plus 3.8% for the Obamacare tax on capital gains. So 31.8% to the feds.

But wait, there's more!!

The seller, as I understand it, lives in New York. The top marginal rate for the great state of New York is 10.9%. I thought I also read that this seller also lives in New York City, which adds another 3.8%. So state + city gets you another 14.7%. And under the new tax law, it's not deductible on your federal return either. Brilliant!

So all-in, taxes are 46.5% on a gain of $12.025M, which gets you to taxes of $5.6M. Seller nets right about $6.425M after taxes. Even with very generous assumptions about who gets the juice, and no listing fees.

If the seller was in a zero tax state (and city), then that would help. The seller would net $8.2M in that scenario. Hopefully this seller moved to Florida last year, although I'm guessing that Governor Hochul will still work like the dickens to get NY's cut in that scenario.

But whether we're talking about $8.2M or $6.425M, it's still a lot less than $12.6M.

[Johnny630]

Originally Posted by raulus

OK. Let's assume the seller got 75% of the buyer's premium, and zero listing fees. You and I aren't going to get this deal when we sell our items. Last time I consigned with this AH, they kept the juice, and I paid 7.5% listing fees. But let's just roll with this generous assumption for now.

So the sale was for $10.5M, with a bidder's premium of $2.1M, total of $12.6M. If we assume that the seller keeps 75% of the bidder's premium, then the seller nets $12.075M.

Now to the fun part - paying taxes. The seller's basis was $50k, which is well known. The gain is therefore $12.025M.

The feds get 28% for capital gains on collectibles. Plus 3.8% for the Obamacare tax on capital gains. So 31.8% to the feds.

But wait, there's more!!

The seller, as I understand it, lives in New York. The top marginal rate for the great state of New York is 10.9%. I thought I also read that this seller also lives in New York City, which adds another 3.8%. So state + city gets you another 14.7%. And under the new tax law, it's not deductible on your federal return either. Brilliant!

So all-in, taxes are 46.5% on a gain of $12.025M, which gets you to taxes of $5.6M. Seller nets right about $6.425M after taxes. Even with very generous assumptions about who gets the juice, and no listing fees.

If the seller was in a zero tax state (and city), then that would help. The seller would net $8.2M in that scenario. Hopefully this seller moved to Florida last year, although I'm guessing that Governor Hochul will still work like the dickens to get NY's cut in that scenario.

But whether we're talking about $8.2M or $6.425M, it's still a lot less than $12.6M.

I've always said this, cards may in theory seem easy and profitable when the time comes to liquidate, until you see that tax bill, ugh. That being said a net of $6.425 million ain’t too shabby for a 30-year investment of $50,000. I'd take that return everyday of the week and twice on Sunday's !

[raulus]

Originally Posted by Johnny630

I've always said this, cards may in theory seem easy and profitable when the time comes to liquidate, until you see that tax bill, ugh. That being said a net of $6.425 million ain’t too shabby for a 30-year investment of $50,000. I'd take that return everyday of the week and twice on Sunday's !

If we could get that return on all of our cards, then there’s no doubt that we would all retire comfortably.

[Johnny630]

Originally Posted by raulus

If we could get that return on all of our cards, then there’s no doubt that we would all retire comfortably.

It seems the only way to make a gain like this is to spend big on an item or asset class that you have major conviction in for its long-term growth. It Could be anything, your business, real estate, stocks, crypto, or cards. This gentleman had the smarts and guts to pay the $50,0000 at the time. I believe at the time one recently had just sold, 91 or late 90 with Christie’s or Sotheby’s for $50,000 so I believe that’s how Rosen came up with his price to the gentleman for $50k.

[G1911]

This is a biased sampling predisposed to baseball cards, of course, and many have large investments into them that stand to gain from further growth that is promoted, but I’m a little surprised to see so many that think going all in on like this is a smart decision. It is going all in; if one is to the point that they are emptying 401K’s and IRA’s to pay for cards, they are not diversifying their portfolio. That’s an extreme step.

High end cards have skyrocketed since the opening of 2020. It’s fallen from the peak, but prices remain very high. Gambling your retirement that it will continue inexorably forward and continue to make huge percentage leaps is a very risky gamble. Retirement accounts are set up for very favorable taxation and stability, losing those tax benefits and taking the early withdrawal fees to invest in mass produced collectibles that are not set up for favorable taxation (if I sold a Mantle I’d owe close to 50% of my profit in taxes alone) is a titanic gamble. You don’t have to have your cards perform better than the stock market to profit from this, you have to beat it by a LOT.

One can gain a lot from large risk. Draining your retirement accounts to participate in the current collectibles fad is a large one. Whether it’s cards, crypto, beanie babies or GME, it can pay off big time. If I had bought into 52 Mantles and sold them now, or had bought more crypto in 2009, or drained my 401K to join the apes on WallStreetBets when they started the train on GME, I’d have made more than my index invested retirement accounts. There are also many such events where I would have gone broke if I followed the hype. Stocks may go up or down, but the market grows over time. If the market doesn’t grow over time, the US dollar collapses and your collectibles collapse too. Retirement accounts are set up favorably to enable responsibility and security for old age. I have a hard time seeing that risking a secure retirement in favor of going all the way in on baseball cards after a huge rush and pump is intelligent financial advice. Again, emptying retirement accounts to do it is very different from diversifying or putting some of one’s cash or income into it as a supplemental investment.

[soxinseven]

Originally Posted by ullmandds

If he did not get half of the buyers premium I say he did himself a disservice

This.