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How do I hold IRS Approved Coins in a Self-Directed IRA

Internal Revenue Code Section 408(m) identifies the types of coins that may be purchased using a Self-Directed IRA.

Section 408(m)(3)(A) lists the type of coins that may be purchased with retirement funds, which generally are American Eagle and U.S. state minted coins of a certain finesse. The Technical and Miscellaneous Revenue Act of 1988 also allowed for the purchase of state minted coins. Whereas, IRC 408(m)(3)(B), refers to gold, silver, or palladium bullion of a certain finesse which must be held in the physical possession of a U.S. trustee, as described under subsection IRC 408(a).

American Eagle Coin
Using a self-directed IRA to purchase American Eagle coins tax-free

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 and does the bank where the coins are being held either physically or in a safe deposit box have to be the bank where the IRA was established or could it be any bank or financial institution that satisfies the definition of trustee under IRC Section 408.

How to Hold IRS Approved Coins with a Self-Directed IRA?

Can IRS approved coins, as described in IRC Section 408(m)(3)(A), be held personally? Unfortunately, there is not much IRS guidance on this point, but since coins may also be bullion, as defined in IRC Section 408(m)(3)(B), most tax practitioners take the position that IRS approved coins purchased by a retirement account should be held in the physical possession of a trustee, as defined under IRC Section 408. However, the Technical and Miscellaneous Revenue Act of 1988 does state that a retirement account may purchase state minted coins so long as a person holds them independent of the IRA owner. The 1988 Act does not define “Person” and interestingly does not refer to the term “trustee.” So can one hold IRS approved coins personally? IRA Financial Group believes that IRS approved coins should not be held personally by the IRA holder and should be held in the physical possession of a trustee, as defined in IRC Section 408. That begs the next question; can a Self-Directed IRA LLC or Solo 401(k) Plan hold IRS approved coins and precious metals/bullion in a safe deposit box in the name of the LLC or Solo 401(k) Plan?

Using a Safe Deposit Box to Hold IRS Approved Coins Owned by a Self-Directed IRA LLC

In the case of a Self-Directed IRA LLC, IRS approved coins are purchased by the LLC manager in the name of the LLC, which is owned by the IRA, whereas, in the case of a Solo 401(k) Plan, the trustee of the Solo 401(k) Plan will purchase the coins for the benefit of the plan. So where can the manager of the LLC or Solo 401(k) plan trustee hold the coins. Clearly, the safest approach, and the approach we recommend to all of our clients, is for the coins to be held in the physical possession of a trustee, as defined in Section 408, such as a depository. But what about a bank safe deposit box in the name of the LLC or Solo 401(k) Plan? Again, there is no formal IRS guidance on this point, but here are a few points to consider:

If a an IRA holder holds coins in a safe deposit box at a U.S. bank in the name of the Self-Directed IRA LLC the coins are clearly not being held by the IRA owner personally, which in the case of state minted coins would seem to satisfy the language in Technical and Miscellaneous Revenue Act of 1988. In the case of IRS approved coins that are not state minted, IRC Section 408(m)(3)(A) does not seemingly include a “physical possession” requirement, however, some IRS approved coins, such as American Eagles, can be considered bullion and could then fall under the ”physical possession” requirement under IRC 408(m)(3)(B) for bullion. Thus, holding IRS approved coins at a bank safety deposit box in the name of the IRA LLC or Solo 401(k) Plan is certainly not in the physical possession of the IRA holder since they will physically be held in a safe deposit box of the bank in the name of the IRA LLC or Solo 401(k) plan. However, the question, then becomes is the bank where the coins are being stored in the name of the LLC or Solo 401(k) plan considered the trustee of the IRA, as defined by IRC Section 408.

The definition of a U.S. trustee is outlined in IRC Section 408(a), which discusses the definition of an IRA. So the argument goes if the IRS approved coins are held at a bank safe deposit box in the name of the LLC and the bank is not the trustee or the custodian of the IRA that holds the coins, then is the physical possession definition satisfied and is the bank acting as the IRA trustee? There are arguments on both sides. For example, IRC Section 408(m) also applies to 401(k) plans and the definition of a 401(k) plan trustee is not the same as a trustee of an IRA. Since the physical possession requirement outlined in IRC Section 408(m)(3)(B) applies to IRAs and 401(k) plans, some tax practitioners believe that the definition is satisfied so long as the coins are held at a bank or financial institution that satisfies the definition of trustee, as outlined in IRC Section 408(m), and not necessarily the actual trustee of the retirement account. The language in IRC Section 408(m)(3)(B) uses the term “a” trustee” and not the “the” trustee” offering some support for the position that the coins can be held at any trustee, as defined under IRC 408(a) and not just the trustee of the IRA. This would make sense since a depository is considered a trustee pursuant to IRC Section 408(a), but may not be the actual trustee of the IRA owning the coins.

The Final Verdict

IRA Financial Group suggests that all clients seeking to purchase IRS approved coins or precious metals/bullion with their retirement account hold them in the physical possession of a trustee, such as a depository. The IRS, as outlined in IRC 408(m)(3)(B) clearly does not allow any individual to hold IRS approved coins or precious metals/bullion personally, such as in their house. However, the Technical and Miscellaneous Revenue Act of 1988 Senate amendment seems to suggest that state minted coins can be held by a person other than the IRA holder, without referencing the term trustee, as defined in IRC Section 408. Nevertheless, we recommend that IRS approved coins should not be held personally by the IRA holder and should be held at a trustee, as defined in IRC 408.

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