Inflation has become a real concern for many retirement investors in 2022 and there is good reason for this. Inflation accelerated in March 2022 to a new four-decade high as the Russian war in Ukraine drove swift price gains for oil and gas. The consumer price index rose 8.5% in March 2022 from 2021, according to a Labor Department report, marking the fastest increase since January 1982, when inflation hit 8.4%. With the rise of inflation and concerns about the short-term health of the economy, precious metals, such as gold, have reemerged as a popular investment for IRA investors.
IRS-Approved Precious Metals
The following is the language from Code Section 408(m):
(ii) a silver coin described in section 5112(e) of title 31, United States Code,
(iii) a platinum coin described in section 5112(k) of title 31, United States Code, or
(iv) a coin issued under the laws of any State, or
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 5 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.
Furthermore, the Technical and Miscellaneous Revenue Act of 1998 allowed retirement account owners to invest their retirement account 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.
In other words, an IRA or 401(k) can invest in pure bullion bars, coins, as well as American Eagle and state-minted coins. All precious metals and IRS approved coins must not be held personally, and must be held in the physical possession of a regulated depository or bank.
Over the years there has been companies advertising that you can hold precious metals and/or coins owned by an IRA at your home. The Tax Court in McNulty v. Commissioner finally confirmed what the majority of the Self-Directed IRA industry believed that an IRA owner cannot take personal possession of any IRA-owned IRS-approved metal, including gold bars or coins.
The IRS does not specifically state what type of investments are approved for IRA accounts. The Code identifies the types of investments or transactions that are prohibited, such as collectibles or self-dealing transactions under Code Section 4975. However, in the case of precious metals, such as bullion bars and coins, the Code is quite clear and precise as to exactly what types of precious metals and coins are IRS-approved.
Tax Advantage of Buying IRS-Approved Precious Metals
The leading advantage of using a Self-Directed IRA to purchase IRS-approved precious metals is that all gains go back to the IRA without tax. In the case of a Self-Directed IRA all gains from the sale of the precious metals or coins are tax deferred. Whereas, in the case of a Self-Directed Roth IRA, all all qualified distributions would be tax free.
When deciding to purchase precious metals with a Self-Directed IRA, the following are some of the important keys to consider:
- Research the right precious metals dealer. Most precious metals dealers are unregulated, so do your homework!
- Know the price of the metal or coin you are buying. It makes sense to follow the price of the metal you are looking to purchase for some time before making the investment.
- Used reputable sources for locating gold dealers. Consider using a local hold dealer, if possible, and ask for references.
- Do not hold the IRA-owned precious metals or coins at home. The McNulty case makes the IRS position crystal clear that IRS-approved metals or coins must be held in a depository.
As always, consult with a financial advisor before making any type of investment. Every individual’s situation is unique, including age, income and risk tolerance. While you can invest in in a Precious Metals IRA, it may not be the best solution for you. If you have any questions, please fill out the contact form below.