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Invest in Silver with a Self-Directed IRA

Invest in Silver with a Self-Directed IRA

Precious metals have always held up well in times of economic upheaval. Obviously, there’s a finite amount of metals on this planet. Unlike dollar bills, you can’t just create more of it. It’s the biggest reason metals tend to hold their value. Investor and financial commentator, Jim Rogers, recently stated how this is the “worst bear market in his lifetime,” and how investing in silver may be your safest bet right now.

Gold has always been the first metal people turn to, however, silver may be as important in today’s world. Not only is silver used in jewelry and eating utensils, it’s a popular metal for use in electronics, solar panels, medicine, and new vehicles. Traditionally used as a reward for 2nd place, silver does not get the attention it deserves and may belong on top of the podium right now. This article will discuss the best way to invest in silver.

Key Points
  • Although not regarded as the best precious metal around, silver should not be overlooked
  • Using a Self-Directed IRA to invest may be the most tax-efficient way to do so
  • So long as you adhere to the IRS rules, silver can provide a hedge against a tumultuous economy

What is a Self-Directed IRA?

Not all IRAs are the same. A Self-Directed IRA is a type of IRA structure that allows one to have more control over his or her retirement funds. It is a retirement vehicle that allows you to invest in just about anything you want, including silver and other precious metals.

The primary reason IRA investors are turning to silver, gold, and other metals in 2022 is a hedge against rising prices and inflation.  Like gold, silver can be viewed as a safe-harbor investment during a period of financial difficulty because it’s a hard asset and a store of value. It can also be viewed as an alternative currency to fiat, such as the dollar or euro, which is why silver is so popular during times of high inflation.

What Can I Buy with a Self-Directed IRA?

Although there is no list of approved investments for retirement plans, there are special rules set forth by the IRS that preclude retirement accounts from making certain investments. IRC Section 408 precludes a retirement plan from investing in life insurance and collectibles, such as art, antiques, gems, coins, or alcoholic beverages. However, IRC 408(m) includes specific exceptions for certain approved precious metals and coins.

IRC 4975 deals with prohibited transactions involving disqualified persons. Basically, your retirement plan can be the only thing that benefits from its investments. You, as the account holder, your spouse, and any lineal ascendants and descendants are the main focus of the disqualified persons rule.

What Type of Precious Metals and Coins are Allowed?

In general, pursuant to IRC Section 408(m), a retirement account is permitted to invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion of a minimum fineness of 0.999.

Below is a breakdown of the types of precious metals and coins that can be purchased with a Self-Directed IRA:

  • Certain gold, silver, or platinum coins described in 31 USC Section 5112. See IRC Section 408(m)(3)(A) for the full definition.
  • Any coin issued under the laws of any state.
  • Any gold, silver, platinum, or palladium bullion of a certain fineness if a bank or approved non-bank trustee keeps physical possession of it. See IRC Section 408(m)(3).

In addition, the Technical and Miscellaneous Revenue Act of 1998 allowed retirement account owners to invest their retirement account 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.

In other words, the metals or coins purchased using a Self-Directed IRA must be of a certain finesse (.99%) and must be held at a depository.

Tax Advantages of Buying Silver in a Self-Directed IRA

Using a Self-Directed IRA to make silver or other investments has enormous tax and retirement benefits.  In general, all gains from the sale of IRA-owned silver would not be subject to immediate taxation. So long as the asset remains in the plan, you are not subject to any tax on the income it generates. Taxes are deferred in a traditional IRA, while there are no taxes due on qualified Roth IRA distributions.

The Self-Directed IRA is one of the easiest and best ways taxpayers can take advantage of the power of compounding returns.

How to Buy Silver in a Self-Directed IRA

Full-Service Self-Directed IRA

A full-service Self-Directed IRA offers an investor more investment options than a financial institution plan. With it, a special IRA custodian, such as IRA Financial, will serve as the custodian of the IRA. At your direction, the custodian will make the investment (in this case, the purchase of silver).

As mentioned earlier, the income and gains will flow back to the IRA without tax.  The IRA custodian will handle all IRS reporting with respect to the plan so that the IRA owner can focus on the investment and not the IRA administration.

Self-Directed IRA LLC with Checkbook Control

The “Checkbook Control” IRA utilizes an LLC to make the investment. Under the checkbook IRA format, a limited liability company is created which is then funded and owned by the IRA and managed by the IRA holder.

This alternative allows one to eliminate certain costs and delays often associated with using a full-service IRA custodian.  The Checkbook IRA LLC structure allows the investor to act quickly when the right investment opportunity presents itself cost effectively and without delay. You have the ultimate control of your retirement.

Conclusion

Precious metals investments, especially silver, have become one of the most popular asset classes in 2022. Because it is a hard asset and believed to be a hedge against rising prices and inflation, a growing number of investors have looked to gain exposure to silver.

The tax benefits offered by the IRA makes it the smart way to invest. Just remember to hold your IRA-owned silver at a depository or financial institution, and not in your physical possession.

Keep in mind the above is for educational purposes and one should do his or her own due diligence before making an investment. It’s up to you and your financial advisor to decide of investing in silver is right for you.

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