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Gold in a Self-Directed IRA

gold in a self-directed ira
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Benefits of Investing in Gold

Since the Gold Rush of 1849, people have clamored to get their hands on the precious metal. People often rush to gold, and other metals, in times of economic downturns. It’s always been considered a “safe” investment. Apart from a few hiccups, gold has gone up since the turn of the century. The benefits of investing in Gold include:

Stability – Gold is one of the most stable investments. Yes, gold has had its down years, but the overall picture is quite clear that gold tends to retain its value.

Security – Since gold is a physical and valuable asset, precautions must be made to keep it secure. If you choose to store it yourself, you’ll need the best safe money can buy. If stored elsewhere, such as a bank vault, let’s hope their security is capable of thwarting would-be bank robbers. However, if you purchase gold in a self-directed IRA, we recommend reading the section below.

Price – When this article was originally written, on 8/16/2019, the price of gold was $1,377. Two years later on 8/16/2021, the price of gold was $1,778.62. As on 01/05/22, gold is currently trading at $1,824.15.

What is a Gold IRA?

A “Gold IRA,” is a self-directed retirement account that primarily consists of gold or other precious metals. Like a real estate IRA, individuals frequently open Gold IRAs to diversify their portfolios. However, self-directed Gold IRAs are not limited to purchasing gold or precious metals. Instead, investors can invest in a wide range of alternative assets including real estate, cryptocurrencies, hard-money loans and more.

Learn More: Open a Self-Directed IRA Online

Gold Investments with Retirement Funds

Gold is considered an alternative asset or alterative investment. While you can purchase gold in an IRA or Solo 401(k), you first need to identify a Self-Directed IRA or Solo 401(k) custodian. Although many financial institutions allow individuals to purchase stocks and mutual funds in an IRA, a Self-Directed IRA or Solo 401(k) allows you to purchase both traditional and alternative investments. However, it is important to note that not all Self-Directed IRA or Solo 401(k) custodians offer the same types of assets. For example, at IRA Financial, individuals can also invest in real-estate, private companies, cryptos and more! Yet other companies only allow individuals to invest in Gold or Cryptos. Even though you may have an interest in Gold, diversifying your portfolio is equally important.

Since many IRA custodians that offer Self-Directed IRAs or Solo 401(k) plans allow you to invest in Gold, it is fairly easy to use your retirement funds to purchase and invest in gold. If you are interested in investing in Gold, you must first establish a Self-Directed IRA (or Solo 401(k) for self-employed individuals) with a self-directed, or passive, custodian, such as IRA Financial Trust. At IRA Financial, you can easily establish an account on our website, through our app, or by calling us. However, before deciding where to establish a Gold IRA, it is imperative that you assess each company’s fee structure. Many companies claim to offer free Self-Directed IRAs. While the initial set-up may be free, these companies often charge transaction fees or account valuation fees. These fees can quickly reduce your profits. At IRA Financial we offer a flat fee structure. Individuals pay annually for an account and are not charged account valuation or transaction fees.

After deciding a Self-Directed IRA Custodian, you need to ask what types of gold you can invest in. Although you are permitted to invest in Gold and other precious metals in an IRA, there are a few regulations. In general, the IRS permits IRA investors to invest in gold and other alternative asset investments, such as real estate, tax liens and more. The Internal Revenue Code has stipulations on what type of gold and other precious metals investors can purchase, but other than these few stipulations, it is legal to purchase gold with a self-directed IRA.

Learn More: Types of Self-Directed IRAs

What Type of Gold 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:

  • (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) [2] 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.

In addition, the Technical and Miscellaneous Revenue Act of 1988 allowed IRA owners to invest in state minted coins so long as they are held in the possession of the IRA holder.

How do I hold Gold in an IRA?

Internal Revenue Code Section 408(m) identifies what types of coins and precious metals (bullion) is 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). Bullion is defined as gold bars, silver bars, other precious metals bars or ingots. Bullion is also used to refer to a metal piece shaped in the form of a coin or a bar and plated with a precious metal. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. Examples are gold-plated bars and 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 581 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.

How to Hold Gold

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. This decision was reaffirmed in December 2021, in McNulty v. Commissioner.

Read More: McNulty Case Reaffirms Physical Possession Rules

The safest approaching to holding IRS approved bullion is with an approved depository. However, many retirement investors have looked into potentially holding precious metals (gold, silver, palladium bullion) in a safe 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. Although, there may be sound support for this position there has been no IRS guidance on this issue. As a result, it is advisable to hold IRA owned gold at a depository. However, what is very clear, is that one should not hold Gold in an IRA personally.

In general, the rules surrounding the ownership and possession of gold IRA are complicated. Therefore, it is crucial that one works with a firm, such as IRA Financial Group, that has the expertise and resources to help one navigate the IRS rules without being preoccupied with selling you coins or precious metals.

Learn More:

What is a Self-Directed IRA? The Top Benefits

Self-Directed IRA Investments

What is Checkbook Control Self-Directed IRA?

How to Trade Tax Free with a Self-Directed IRA

Get in Touch

IRA Financial Group is the market’s leading provider of self-directed retirement plans. If you have questions on how to hold gold in a Self-Directed IRA or purchase gold with a Self-Directed IRA, contact us directly at 800-472-0646 or fill out our contact form.

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[10:44 PM] Valerie Marszalek-Boik