Maurice Jackson: Welcome to Proven and Probable. Joining us is Andy Schectman, the president of Miles Franklin Precious Metals Investments.
In our previous interview, we addressed the value propositions and opportunity of a lifetime available right now in silver and platinum. Today, we will address two very important topics regarding tax law selling in precious metals RAs.
Mr. Schectman, before we begin, for first time listeners, who is Miles Franklin, and what type of services do we provide?
Andy Schectman: Thanks, Maurice. I'm going to address that in one second, I just want to say for your listeners, they ought to go back and listen to that last interview. I wouldn't say something as sincere as I believe it to be the opportunity of a generation in silver right now and a strong opportunity in platinum. I really do believe that. And I know we're not going to talk about that today, so I would really hope that your listeners would go and take advantage of listening to that. It's as sincere as I can be.
Miles Franklin, Maurice, is a precious metals company, been in business now for 29 years in the state of Minnesota. We've never had a customer complaint, ever. We're one of only 27 or 28 companies ever approved by the United States Mint. We maintained an A+ rating with the Better Business Bureau. And we have a reputation in this industry that is synonymous with honesty and integrity. And that's exactly why I work with you, Maurice. I have you on my website. You're a man of honor and that's what we ascribe to be.
But the state of Minnesota does not care about our intentions or what we ascribe to be or our reputation in this federally non-regulated industry. And for over two years now, Minnesota is the only state in America to regulate the precious metals industry with a large surety bond and background checks of all our employees every single year, including principals, and compliance and continuing education that no one else has to abide by, unless they either reside in Minnesota as a precious metals company, or sell gold into the state as a precious metals company.
And what it really means in a federally non-regulated industry, Maurice, is a reputation that's as solid as it gets, and the state of Minnesota guaranteeing that should anything ever go wrong, there's a large surety bond in place to take care of any discrepancies. So, not that that will ever happen, but certainly the state of Minnesota guarantees that it won't. And a little insurance in a federally non-regulated industry is not a bad thing, in my opinion.
Maurice Jackson: Andy, I want to begin by thanking you for the compliment. The respect is mutual. A number of investors in the stock market understand the advantages of tax-loss selling when it comes to their stock portfolio. But I find that in many circumstances, precious metals investors are not aware that they may implement a similar strategy on their physical precious metals holdings. Can you share with us some of the options precious metals investors may use to their benefit?
Andy Schectman: Actually, yeah. I find that a lot of accountants don't even know how this rule applies, the difference between a precious metals tax swap or tax loss versus a security's tax loss opportunity. Let me explain. When you sell a security for a loss, you are not allowed to buy it or anything similar to it back for 31 days. Or if you do, it's a violation of what's called the 30-day wash rule. The intention of that is imagine you have a large capital gain. You sold an investment property or sold a stock at a huge gain, or cryptocurrency at a huge gain, and you have a stock that you really like at a loss. You'd like to book that loss, but you don't want to relinquish custody of the stock. So, the idea would then be sell the stock at a loss to cover the gain, to offset it. And then just buy it right back for the typical commission in buying a security on something like Scottrade that might only be $9.
The bottom line is that the federal government says, "Well, you can sell a security to offset a capital gain, you can use a capital loss to offset a capital gain. But if you do that, you can't buy that same stock back or anything similar to it for 31 days." Okay, fine. That 31 day wash rule does not apply to precious metals. So, if we were talking about trading gold for gold or silver for silver to book a loss and buy it right back, that's completely, totally legal, as long as custody changes place. So, in other words, if you had gold to sell and you wanted to book a loss at these low levels, and either apply it towards a capital gain today, Maurice, or government allows you to carry that forward either ... I think it's $3,000 a year off or regular income, or you can carry it forward indefinitely until you have a capital gain.
But if you do it for the exact same product, in fact, the exact same product that you sell, you just decided to buy it back immediately, you can do that as long as custody changes hands. You'd have to send it to us and then we send it back to you. Just normal business spreads apply. But then you can book that loss. But, looking at gold to silver right now, I guess we can touch on it for a second. Never been a better time to kill two birds with one stone, sell your gold at a loss, book that loss and convert it to silver at 86 to 1 ratio.
That ratio, Maurice, has only been seen or bettered once in the last 50 years in 1993. When you look at silver right now, I see a historical ratio of silver to gold of being 40 to 1 going back 100 years. Over the last 50 years, it's a little higher at about 45 to 1. But anytime you can see 80 to 1 bettered at all, typically you see it revert pretty darn close back to the mean, sometimes even below it. Last time was 2011. We had an 80 to 1 ratio for 2010. And by 2011, we had $2,000 gold and $50 silver at a 40 to 1 ratio. You would have doubled the amount of gold when you swapped back in.
Huge opportunity now to trade gold to silver, book a loss, buy silver at a rate we haven't seen but once in the last 50 years, with the intention, Maurice, of someday swapping back into gold and maybe doubling it or better when these ratios normalized. And if you read our newsletter today, there are a plethora of reasons why we expect silver to be among the very best performing assets on the planet going forward.
So the bottom line is that the precious metals tax swap or tax loss plan is actually far more encompassing and liberal than is the security's tax swap that inhibits you from buying anything similar to it, whatever you sold, for over 31 days.
Maurice Jackson: And the key here, again, is that ownership has to convey.
Andy Schectman: Right. Let's say someone had something in the storage facility, like one of our Brinks facilities or any facility—we have relationships with just about every major storage facility in North America. A client maybe has a couple thousand ounces of silver in a storage facility. They would sell it. It gets transferred to our parent account in that facility. And they'd buy it right back at normal spreads. Here's a little cherry on the sundae. While we sell something and book a loss, we give that information to our accountant.
The accountant never says to you, "Maurice, what did you do with the proceeds of that sale?" Your answer should be, "None of your business." If you're a nice guy like you, you'd probably tell them what you did. But the point is, is that if you sold something at a loss and then bought it back, there is no obligation to report what you did with the proceeds of that sale. And if you're using the proceeds of the sale to finance the repurchase, the difference may be one or two percent. You can send a check for two percent. But the point of it is, is that if someone sells $100,000 worth of metal and then immediately turns around and buys it back, and gets ninety, eight cents on the dollar for it. So it costs them two percent to do the swap, but they just saved 20, 30, 40, 50 percent on capital gains.
It's a home run for the client, not only in the tax savings, but also in the fact that we live in a world of decreasing privacy. And the loss in privacy in and of itself in buying gold is writing out a check or sending a wire. That wouldn't happen here, because the only amount of money that's going to be exchanged is the two percent or the client could simply say, "Just keep it out of the gold or silver. Give me back my 98 percent and that's fine." That transaction now is, for all intents and purposes, paper trail free completely and totally legal.
So at some point, let's say a client were to get audited for something unrelated and they see this transaction. Well, you have the receipts, you have the metal. You just didn't write out a check to reacquire it, giving you a whole bunch of privacy to boot.
Maurice Jackson: This is some valuable information. Andy, I'd like to switch gears here and still stick with precious metals, if I may.
Miles Franklin offers physical precious metals, IRAs, which offer some unique features. But most important, these IRAs can be redeemed in physical precious metals. What type of clients have physical precious metal IRAs?
Andy Schectman: I don't know that there's a specific type. But for my money, the best person to own a precious metals IRA is someone who is at or nearing distribution phase. I'm sure you know, Maurice, on a traditional IRA, when we are 70 and a half years old, the federal government says we need to take what's called a required minimum distribution. In other words, you cannot let it continue to grow without taking a minimum distribution from it when we turn 70 1/2 years old, or you start to receive a penalty if you don't.
So you take a minimum distribution every year, once you turn 70 1/2. For me, because this investment or the IRA allows you to take what's called an in-kind distribution, where you would say, "You know what? Just send me my gold eagles or my silver eagles," or whatever it is that's being stored for you. And the list is pretty lengthy as to what you can store in a precious metals IRA, just pretty much has to be either American made, or 24 karat in gold, or 0.9995 in silver, and LBMA approved or Nymex approved metal, and it can be stored in an IRA. So the neat thing about it is the distribution in kind. Instead of taking a check, you can take your metal back.
So, someone who wants to buy gold from me. Let's say they're 70 years old or 69 or 68, one way to make a big splash in the gold pool without writing out a big check is to transfer an IRA into a precious metals IRA, fund it with gold and silver, and then start taking distributions of it through your IRA distribution channels. So for me, because it's a non-interest bearing investment, I think it is a perfectly suited for someone at or nearing the distribution phase.
Maurice Jackson: Now, do I have the option of owning gold, silver, platinum, and palladium in this physical precious metals IRA?
Andy Schectman: Yes, you do.
Maurice Jackson: Now, as the ratios change, may I sell within my holdings, exchanging one metal for another?
Andy Schectman: I love the way you're thinking outside the box. It's the best vehicle for doing it because there are no tax consequences. If anyone is holding gold right now and not at least contemplating trading it to silver, or owning palladium and not contemplating trading it to platinum, they're making a mistake. These ratios, Maurice, are so far out of whack, it is akin to four feet of snow in Phoenix. And if it snowed four feet of snow in Phoenix this morning, I promise you no one in Phoenix was rushing out to buy snowmobiles. It's an anomaly and that's exactly same thing we're seeing right now. So, yes, if you have it in an IRA, if you have gold in an IRA, it is an absolute perfect vehicle to trade the silver. You have it stored, the storage fees are static, and there are no tax consequences. It's a great vehicle for doing it.
Maurice Jackson: What is the maximum contribution I may make annually?
Andy Schectman: Contributions cannot go higher, in both traditional and Roth IRAs, than $5,500 per year, $6,500 if you're 50 or older. The perfect vehicle, Maurice, is a transfer or a rollover, a transfer being you transfer a portion of an existing IRA, or you rollover the entire thing into a new precious metals IRA. That's the best way to get a larger amount of money into an IRA.
Maurice Jackson: And that alludes to my next question here. So, if you currently have a 401k, you can't transfer that over right now. But if you're no longer with that employer, can you take your 401k and transfer it over?
Andy Schectman: Absolutely. And if you are no longer working with an employer who offered a 401k, you're crazy to not move it out of said 401k, because of the lack of flexibility that the 401ks offer. And the whole idea for being in a 401k, or the whole incentive, is to have it matched. The matching that the employers typically provide is incentive to keep it in. But leaving it in a 401k, which is just a couple of different choices within that platform, instead of having the ability to self-direct it, it would be a mistake. A 401k is a little bit different. You would turn it into a self-directed IRA, and then purchase the metal. But either a traditional IRA can be rolled over or transferred, or someone who had a 401k would transfer that to a self-directed IRA without any taxable issues, and then purchase metals that way.
Maurice Jackson: Lastly, what if I wanted to leave a lasting legacy with my children or grandchildren? May I open up a precious metals IRA for them?
Andy Schectman: You know, Maurice, I truly believe what has made me successful, among a few other lucky breaks, is being very objective. And the salesman in me wants to say, "Yeah, sure, absolutely. Great idea." But I think in truth, if someone wanted to leave a lasting legacy for someone, a child or a grandchild, number one, someone who has many years, a life ahead of them, interest bearing is important. And if you could put it into something interest bearing, preferably compounding, that is the key to grow in wealth. But as far as precious metals, when I started in this industry, I was 19 years old. And my father and I started this company together. And he said to me when we started, "There'll be one rule and one rule only." And that is that I'll buy something every two weeks or he'll fire me. I'm the president of the company now and I own 51%, so he won't fire me any longer. But I have honored my commitment to him for over almost three decades. And every two weeks, I have purchased precious metals, every two weeks for 29 years. I have not missed a two-week period.
To me, it is wealth. And the best way to accumulate wealth is to do it that way, privately, not in an IRA where it's going to sit there for a long period of time because it's a very different set of conditions to call precious metals in your possession that you and only you know about it versus having it in an IRA. And I don't think I need to elaborate on that anymore. But I simply think that my grandchildren will greatly appreciate, hopefully someday, receiving gold and silver that was first passed on from my father, and to me and my sister, and from me to my three children, and hopefully from them to their children and etc.
And it's done so in a manner that is very private. And I think, in a world of decreasing privacy, a little bit of extra privacy is a nice thing. And, you know, there are proper ways to pass money on in your estate. And if you can have a little bit of privacy to boot, that's not a bad thing.
Maurice Jackson: Mr. Schectman, thank you for sharing your wisdom and insights. For someone that wants to get more information regarding today's discussion, please share the website and phone number.
Maurice Jackson: As a reminder for our audience, we are licensed brokers to buy and sell gold, silver, platinum, palladium, and rhodium, offshore storage accounts and precious metals IRAs. If you wish to have a conversation with me, please email [email protected] or call 919-274-5680.
Andy Schectman of Miles Franklin Precious Metals Investments, thank you for joining us today on Proven and Probable.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.[NLINSERT]
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