Tax Restrictions on Collectibles - Does this apply to videogames?

[Pantechnicon]

http://www.taxact.com/tax-tips/index.asp?tid=1691


Restrictions on Collectibles Investments

If you have a self-directed traditional IRA and you invest in collectibles, such as art works, gems, stamps, antiques, rugs, metals, guns, or certain coins, you will have to pay a tax on your investment. The investment is treated as a taxable distribution to you in the year you make it. Coins are treated as collectibles, except for state-issued coins or certain U.S. minted gold, silver, and platinum coins. There is also an exception for gold, silver, platinum, or palladium bullion held by the IRA trustee, provided the fineness of the metal meets commodity market standards. If bullion is stored with a company other than the IRA trustee, the investment is subject to the deemed distribution rule for collectibles.

A couple of questions come to mind:

1. Is anybody here actually funding an IRA via their collection? I mean it's one thing to joke around and say that, that Entex Adventurevision is a component of your retirement plan, but is anyone actually acting on this?

2. If so, how would the taxation rate on finds be assessed? If I found (ha ha) a CIB Stadium Events at Goodwill as opposed to Sotheby's, will I come out ahead with respect to the IRS?

[Rickstilwell1]

Well if you don't count it toward your IRA and just keep it as a mere possession, then no you don't need to pay taxes on something you already bought. A Neo Geo AES with the box usually has a hefty price tag and so does a working Atari Jaguar CD, but if I don't want it anymore I can sell it on ebay without tax.

[rbudrick]

I think the key is whether you are "investing" in them, in other words, for monetary gain...I'm not sure how you could do that unless you were selling them at retirement, so just tell the guvmint you're keeping them forever?

Lawyers, discuss.

-Rob

[Bojay1997]

I think you are reading the provision too broadly. It only applies if your have an IRA which is "self-directed" which means you pick and choose individual investments and then use your IRA funds to invest in them. Just like any IRA, if you then sell those investments, the funds have to be placed back in your IRA or they become a premature distribution and the gains may be taxable at a significant rate. Reading more closely, if you do use your IRA to purchase collectibles, you will be taxed as though you are cashing out that portion of your IRA and I believe the tax penalty is an additional 10% over whatever taxes you already owe for an early distribution.

[oldtimeygamer]

You can't invest in collectables an IRA. The article states that if you invest in any of the mentioned investments it is deemed a taxable distribution. What this means is if you take money out of your account to purchase paintings, rugs, jewels, or even video games if you will, that it is a taxable distribution to you and is no longer considered IRA or retirement monies. This could disqualify your whole account.

No custodian, not even a Trust company or bank with a Trust department would allow this.

First this is not possible to transact. You can not fund an IRA in any way other than cash or a rollover from an employer sponsored plan (401K,457,403b) so you can't start the account with video games.

Second you would have to find a financial institution to purchase the assets through. You can'tgo to the flea market and buy a game then put it in the account. I don't think Raymond James or Edward Jones are going to sell copies of Earthbound.

This is all laid out in IRS publication 590, the document governing IRA plans.

End of discussion.