Not because I'm expecting a Mad Max scenario, not because I'm anticipating hyperinflation or deflation, but because I think adding a small allocation of even a volatile alternative asset to a portfolio of stocks and bonds will smooth portfolio returns, I'm thinking of adding as much as a 10% allocation of gold to my taxable account. With the addition of gold, my asset allocation would be around 80% equities, 15-10% bonds, 5-10% gold. I prefer to keep my Roth for equities. I have been thinking of adding AAAU - Perth Mint Physical Gold ETF (expense ratio 0.18%) or SGOL - Aberdeen Standard Physical Swiss Gold Shares ETF (expense ratio 0.17%), but thanks to some recent posts in these forums, including Better to invest in gold via ETF or ETN?, I'm now more inclined to buy PHYS - Sprott Physical Gold Trust (expense ratio 0.45%) because it can be taxed at the capital gains rate if held for more than one year. But I need your help. My understanding is that gold ETFs are taxed at the ordinary income rate or the collectible rate (28%), whichever is lower. Is that correct?
Here is information from Sprott regarding IRS filing and more:
My portfolio soon might look like this:Normally, all long-term capital gains on investments in precious metals (including gold, silver, platinum and palladium) are subject to a 28% collectibles tax rate (short-term capital gains are subject to a 37% tax rate in 2018). Losses on the disposition of precious metals are treated as capital losses which can only be used to offset capital gains and $3,000 of ordinary income.
But because the Trusts are PFICs [Passive Foreign Investment Companies], a U.S. individual investor is eligible for long-term capital gain tax rate (a maximum rate of 15% or 20% depending on income) on the sale or redemption of their units, including a redemption for physical bullion. In order to be eligible for the capital gain tax rate, a U.S. taxable investor must make a Qualifying Electing Fund (QEF) election with respect to each Trust and must have held the units for more than one year at the time of the sale.
Any U.S. taxable investor can make a QEF election, which is made on IRS Form 8621 that is filed with the investor’s annual U.S. income tax return.
The QEF election must be made with the tax return for the first year in which the investor acquired shares of the Trust. The election is made only once and is maintained by reporting the investor’s pro rata share of the Trust’s ordinary earnings and net capital gain on Form 8621 as described in Item 8 (“What are the other consequences of the Trusts being PFICs?”). Note that while the election is made only once, the investor will have to file a Form 8621 with the investor’s annual income tax reports to report the income from the Trust as described in Item 8. If an investor acquires additional units, a new election is not necessary with respect to such units as the existing election will automatically apply to such newly acquired units.
Taxable (I would rather have just VT instead of VTI + VXUS, but because of the foreign tax credit applying to VXUS and not to VT at current global market weights, I'll go with VTI + VXUS)
- VTI - Vanguard Total Stock Market ETF
- VXUS - Vanguard Total International Stock ETF
- BNDW - Vanguard Total World Bond ETF
- Whatever I pick for gold (AAAU, SGOL or PHYS) goes here
- VBTIX - Vanguard Total Bond Market Index
- VT Vanguard Total World Stock ETF
![User avatar](data:image/svg+xml,<svg xmlns="http://www.w3.org/2000/svg" width="50" height="50"><rect fill-opacity="0"/></svg>)
