At age 33, Robert J. Harris is already looking toward his retirement. A Carlsbad, N.M., dentist, he started a Keogh retirement plan last year and uses the money he puts into it to buy art prints. Buying cheap and selling dear, he rolls the profits over into new art purchases which he'll keep doing until he is 45 when he figures he will have made $1 million and be able to retire.
Under Keogh provisions, one is not supposed to take out money from a Keogh before age 59 1/2, but Dr. Harris is willing to take the 10 percent penalty, believing that his earnings will have more than compensated for that.
"I don't know what the world will be like when I'm 59," he pointed out. "If it's anything like the way it now, I'll want my money out sooner rather than later."
Individual retirement accounts, Keogh, and corporate pension plans allow people to sock away part of their earnings in income-producing stocks or assets which they can draw upon when they retire. At that point, their income would be reduced and they would pay less in taxes on it.
While that money sits there, waiting for its contributor to reach retirement age, a lot of things can happen with it. Hard-asset investments -- such as gold , gems, coins, and art --have long been the province of speculators, but they have increasingly become a currency of pension and trust fund managers.
Not only are these kinds of investments different from the traditional retirement plans -- usually based on insurance or stocks --have a say in how their money is invested is in marked contrast to the traditional kinds.
"The basic criteria of the plan is the same as the ones offered elsewhere," stated Mike Kirkpatrick, a partner in a Dallas accounting firm, who set up Dr. Harris's Keogh account with the Lakewood Bank & Trust in Dallas. "I happen to be one who believes in hard-money investments. You have to protect yourself as best you can from inflation and the self-trusteed -- I should say self-directed, as the trustee permits you to direct it -- pension or profit-sharing plan is one good way to do it."
Mr. Kirkpatrick's experience with such plans is close to home. He participates in his firm's profit-sharing plan, which invests its money in gold and rare coins. Under the program he created, an art dealer known to Dr. Harris became effectively the trustee of the Keogh, responsible for buying or selling prints as Dr. Harris directs him -- for which he receives a commission -- with all proceeds returning to the Keogh.
Some of the prints owned by Dr. Harris's Keogh plan are shown in three art galleries in San Francisco. His Keogh is also a partner in the Art Collectors Guild, a New York City publishing company which creates print editions. Through this setup, Dr. Harris is able to buy prints cheaply and sell them at a substantial profit through the dealer and the galleries. The $7,500 which he put into his Keogh account last year has become worth $17,000, Dr. Harris noted, adding that by the end of 1981 his account (to which he will add another $7,500) should be worth close to $39,000.
"The only things you can't do with this kind of account," Paul Ruher, vice-president and chief trust officer of the Lakewood Bank, said, "are buy anything for yourself, buy anything from your family, or show anything you buy in your own home or in the home of a family member."
The Congress did not intend to create a tax incentive for buying art when it passed the Employment Retirement Security Act in 1974 --company pensions to set up their own retirement plans with sponsoring banks or other financial institutions. But for some people it has served that purpose. Contributions to these plans (a maximum of $1,500 and $7,500 per year for the individual retirement account and the Keogh plan, respectively) can be taken as a tax deduction from income but that money can be used in any way agreed upon by the sponsor and the participant.
"Most retirement plans are drawn up for the convenience of the sponsor," said Barney Squar, president of Associated Administrators Ltd. in Van Nuys, Calif. "The money is generally put into life insurance or mutual funds, since that's where the sponsor usually puts its money."
He added that Associated Administrators has a "flexible program" which allows for total discretion by the client in how the money is invested.
Another reason that banks have tended to be reluctant about permitting such "hard asset investments" as art is the problem of storage. The trustee must have physical possession of the investment, and this is an easier problem when one is dealing with stocks or bonds than with a painting which would need a temperature-controlled vault. There are rather few such vaults around, and banks don't often own them.
Another problem is that bank officials are not necessarily knowledgeable about how to buy art, where, when and at what price.
The self-directed plan, on the other hand, puts the main brunt on the participant, who would find the art he or she wished to buy, arrange for the trustee to make the purchase and for some way that the work can be safely stored by the trustee.
Some participants make direct contact with dealers, galleries, or museums, which act as trustees under the flexible provisions of the sponsor. When works are stored (or shown) in a gallery or museum, additional insurance and storage costs are avoided and general safe-keeping is assured.
Investing in art for a pension plan is a relatively new concept -- previously , such investments were not considered prudent capital risks -- but its star has been on the rise as stocks and money funds have not kept up with inflation as have hard assets. Will the Internal Revenue Service find itself flooded with tax returns from retired art collectors some April 16 in the future? It's a thought worth contemplating.