Buying Precious Metals with Your Self Directed IRA/LLC or Solo 401(k)
Thanks to significant advertising by precious metals dealers, it has become widely known that Gold, Silver and other precious metals (Platinum & Palladium) can be purchased with retirement account funds. By Self-Directing your IRA LLC or 401(k) investments into precious metals, your profits are tax-deferred back into your retirement account. More importantly, if you have full checkbook control over your Self-Directed IRA LLC or act as the trustee for your Roth 401(k), the purchases can be made on the spot as fast as you can write a check. Precious metals are the original currency of early civilizations and therefore a store of value, literally for thousands of years.
The purchase of Bullion is a surprisingly safe investment. The transaction is fast and its characteristics make precious metals a perfect investment for the individual with full checkbook control of an IRA Financial Group IRA LLC or the self-employed business owner serving as the trustee of the Solo 401(k) Plan. In fact, the use of a Self-Directed IRA LLC is one of the most tax efficient ways to finance your Gold/Silver purchase.
Only a handful of institutions are skilled in these specialized account structures and only one has been founded by and is exclusively operated by attorneys - IRA Financial Group. Simply put, we are the “gold standard” for Compliance, Leadership, Customer Service, and Technological Innovation. We carefully advise you on handling this type investment in a manner that places these assets closer to your emergency access while remaining solidly within the spirit and letter of the law.
What Type of Precious Metals and Coins are IRS Approved Investments?
Internal Revenue Code Section 408(m) lists the type of precious metals and coins that are permitted investments using IRA funds:
- One, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs). Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure) and be legal tender coins.
- one ounce silver coins minted by the Treasury Department;
- any coin issued under the laws of any state;
- a platinum coin described in 31 USCS 5112(k); and
- gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).
The Technical and Miscellaneous Revenue Act of 1998 allowed IRA owners to invest their IRA assets in certain platinum coins as well as certain gold, silver, platinum, or palladium bullion provided the precious metals are held in the physical possession of the financial organization or depository. With respect to state minted coins, the coins must be held in the possession of a third-party other than the IRA holder. The Technical and Miscellaneous Revenue Act of 1998 does not state that the third-party holding the state minted coins must be a bank, but the holder must not be the IRA holder. Regarding American Eagle coins, there does not seem to be a "physical possession" requirement as precious metals or a restriction on possession by the IRA holder as in the case of state minted coins.
How do I hold Physical Gold in a Self-Directed IRA LLC?
Internal Revenue Code Section 408(m) identifies what types of coins and precious metals are permitted to be purchased using a Self-Directed IRA.
Section 408(m) also states that bullion (IRS approved gold, silver, or palladium) must be held in the physical possession of a trustee described under subsection (a). The “physical possession” requirement seemingly only applies to bullion not approved coins.
A trustee is defined in Internal Revenue Code Section 408(a) as a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.
Internal Revenue Code Section 408(n) defines a bank as any bank (as defined in section 581) or an insured credit union (within the meaning of paragraph (6) or (7) of section 101 of the Federal Credit Union Act).
Section 541 defines a bank as a bank or trust company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State, Territorial, or Federal authority having supervision over banking institutions. Such term also means a domestic building and loan association. The Code seems to suggest that metals cannot be held in a foreign bank account since it would not satisfy the definition of a bank. The question then becomes what does “physical possession” mean.
IRC Section 408(m) clearly states that gold, silver, or palladium bullion must be held in the physical possession of a U.S. trustee, otherwise known as a U.S. bank or financial institution.
Thus, the question then becomes, if a an IRA holder holds precious metals in a safety deposit box at a U.S. bank in the name of the Self-Directed IRA LLC is that in the “physical possession” of a U.S. trustee or bank. Well the argument goes that the precious metals are certainly not in the physical possession of the IRA holder since they will physically be held in a safety deposit box of the bank. Although, an argument can be made that the safety deposit box is constructively in the control of the IRA holder, since he or she has the keys for the box. However, the Internal Revenue Code under Section 408 clearly states “physical possession” and not “constructive control”. From a legal standpoint, possession is not defined to represent control, meaning one can be in possession of an item but not in control or ownership of. Hence, many tax practitioners take the position that holding precious metals in a safety deposit box in the name of the Self-Directed IRA LLC would satisfy the “physical possession” requirement under Internal Revenue Code Section 408(m).
The IRS has not offered any clear guidance on this issue, but what is clear, unlike IRS approved coins, is that precious metals should not be stored in the home or possession of the IRA holder or any person that does not satisfy the definition of a trustee pursuant to the Internal Revenue Code.
How do I hold IRS Approved Coins with a Self-Directed IRA LLC?
Now that you have a clear idea of the types of coins that the IRS allows to be purchased using retirement funds, the next questions becomes how can the coins be held without violating IRS rules.
Unlike precious metals, the Internal Revenue Code and the legislative history does not include a requirement that IRS approved coins be held in the “physical possession of a U.S. trustee.” If so, the requirement would have been so stated in the tax code. Accordingly, it appears that IRS approved coins can be purchased by a Self-Directed IRA LLC and not be held at a depository or U.S. Bank. However, based on conversations between IRA Financial Group tax counsel and representatives of the IRS and Department of Labor, we suggest that our clients try to hold IRS approved coins at a bank safety deposit box, depository, or some sort of third-party vault in the name of the IRA LLC. The reason for this is that it is another level of separation between the IRA holder - a disqualified person - and the IRA LLC assets (the coins), which the IRS plan asset rules will attribute to the IRA even though the coins will be owned by the LLC. Irrespective of the fact that it appears that IRS approved coins are not required to be held in the “physical possession of a U.S. trustee”, holding the coins in the physical possession of a disqualified person puts the onus on the IRS holder, as the disqualified person, to prove that no self-dealing or conflict of interest event occurred in the case of an IRS inquiry. For IRA Financial Group clients that wish to hold IRS approved coins in their physical possession, our retirement tax professionals suggest that an affidavit be drafted stating that the IRS approved coins are being held solely for the benefit of the IRA and not for any personal or other benefit. We also suggest that the affidavit be signed and notarized.
In summary, the "physical possession" threshold seems to only apply to IRS approved precious metals under Internal Revenue Code Section 408(m), although the tax code does not state anywhere that the coins could be held in the possession of a disqualified person. For this reason, the retirement tax professionals at the IRA Financial Group suggest that individuals seeking to hold IRS approved coins hold the coins at a bank safety deposit box in the name of the LLC or some sort of vault or depository. However, holding the coins personally does not appear to violate Internal Revenue Code Section 408. That being said, for all individuals wishing to hold IRS approved coins personally, the retirement tax professionals at the IRA Financial Group suggest having some sort of affidavit stating that the coins will not be held for any personal benefit and will, thus, not violate any of the Internal Revenue Code Section 4975 self-dealing or prohibited transaction rules.
Gold & Silver Purchases
Financial professionals across the globe all agree that asset diversification is the key to success. To reduce the risks of investing, they suggest the purchase of precious metals to diversify investments among different securities or asset classes.
Now you can hold precious metals in your individual retirement account. With a self-directed IRA LLC or Solo 401(k) Plan from IRA Financial Group, you can invest in all types of precious metals, including gold, silver, platinum and palladium.
1. Timing & Pricing. In today’s volatile and complex market place, timing and pricing is everything. With a Self-Directed IRA LLC or Solo 401(k), buy and sell orders can be done instantly, leaving no down time for big price swings in between trades.
2. Your Money Grows Tax-Free. By buying Gold in an IRA Financial Group Self-Directed IRA LLC or Solo 401(k) Plan, you can avoid all taxes until the money invested is withdrawn. Equally important, having access in time of crisis or national emergency is in the forefront of many people’s minds these days; we will help you ease that concern with a sound strategy that’s consistent with IRS requirements.
3. The Flexibility to Buy Time Sensitive Investments. IRA Financial Group’s Self-Directed IRA LLC's allow you to carry a checkbook that is tied to the account while the Solo 401(k) Plan offers the participant the ability to serve in the trustee role. This gives you, the investor, an incredible freedom to buy precious metals at a moment's notice.
4. Flexible Financing. The Solo 401(k) Plan offers a highly attractive loan feature allowing for the purchase of precious metals. Under the Solo 401(k) Plan, a participant can borrow up to either $50,000 or 50% of their account value - whichever is less. The IRA Financial Group Solo 401(k) Plan documents will allow you to use a loan from your Solo 401(k) to finance your precious metals purchase.
Please contact one of our IRA Experts at 800-472-0646 for more information.