The quick answer is Yes. Internal Revenue Code (Code) Section 408(m) lists the type of precious metals and coins that are permitted investments using IRA funds:
- (A) any coin which is –
- a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code,
- a silver coin described in section 5112(e) of title 31, United States Code,
- a platinum coin described in section 5112(k) of title 31, United States Code, or
- a coin issued under the laws of any State,
- (B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7)  requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section.
The language in the Code is quite clear. 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 financial institution or IRS-approved non-bank custodian, such a depository.
A recent case, McNulty v. Commissioner, 157 T.C. No. 10 (November 18, 2021), confirmed the position of the IRS that an IRA owner is not permitted to hold gold coins in his or her personal possession.
What is a Self-Directed IRA and how would it allow Someone to Invest in Gold?
A Self-Directed IRA is not an IRS term you will find anywhere in the Code. It is essentially an IRA account which is permitted to be invested in alternative assets, such as gold. In other words, a Self-Directed IRA is a retirement plan that allows for investments generally not permitted by a brokerage firm or traditional financial institution. There are only three types of investments not permitted by an IRA: (i) life insurance, (ii) collectibles, and any transaction involving a “disqualified person,” which are deemed prohibited. Therefore, if you wish to invest in gold or other metals, you can do so by self-directing your IRA.
Tax-Advantages of a Self-Directed Roth IRA
Using a Self-Directed Roth IRA to make gold or other investments has enormous tax and retirement benefits. In general, if one is over the age of 59 1/2 and the Roth IRA has been opened at least five years, all distributions are tax free. This is also known as the concept of compounding returns, which Albert Einstein has coined the 8th wonder of the world.
In sum, based on the principles of compounding returns, a retirement account investor’s funds should double every eight years if you average an 8% annual rate of return. The Roth IRA is one of the easiest and best ways taxpayers can take advantage of the power of compounding returns.
Do you recommend that someone invest their retirement funds in gold? In what situations does it make sense?
The most common reason why Self-Directed IRA investors look to gold as a retirement investment is to hedge against inflation. The idea is that a gold investment would hedge against inflation and the price would rise along with the rapid growth in consumer prices. In addition, some investors feel safer owning gold than investing in the more volatile equity markets. The one negative reaction many investors have towards gold is that it does not generate any income other than via the sale of the underlying asset, such as real estate or even dividend paying stocks.
What are some alternative methods of investing in gold in a Roth IRA? Are there gold ETFs or other similar options?
Other than physically holding IRS-approved gold bullion and coins at a depository, Roth IRA investors can gain exposure to gold through other investment vehicles, such as: Gold ETFs, publicly traded stocks of gold miners, gold mutual funds, and future gold contracts or options. The safest and least expensive way for a Roth IRA to gain exposure to gold is via ETFs or mutual funds. However, some IRA investors do like owning physical gold or coins. However, based off the McNulty case, gold bullion or coins cannot be held at home and must be held in the physical possession of a U.S. trust company, such as a depository.
With skyrocketing inflation, there is a growing number of Roth IRA investors that are looking to gain more exposure to precious metals, such as gold. IRC Section 408(m) clearly allows a Roth IRA to purchase gold and other IRS-approved metals. However, it is important to remember that all precious metals owned in a retirement account must be held in a U.S. trust company; this is an IRS requirement.
Traditional financial institutions will not allow one to purchase physical metals via an IRA. The Self-Directed IRA is the most common vehicle used by Roth IRA owners to purchase gold and generate tax-free gains.