The current level of the stock market is considered to have the phenomenon of the economic bubble, especially in the current period of uncertainty.
Some individuals with individual retirement accounts (IRAs) and stock market investors may be concerned that their accounts are overexposed to stocks. However, the safest fixed-income investments (CDs, Treasuries, and money market funds) have interest rates close to zero, and investments in gold or other precious metals like silver and platinum may entice some IRAs to put their money into this area.
The U.S. Internal Revenue Code appears to be “throwing cold water” on holding physical precious metal assets in individual retirement accounts.
Generally, investing IRA funds in any metal or coin can be considered a valuable “collectible.” Thus, for federal income tax purposes, the transaction features a taxable distribution from funds in the IRA, followed by the purchase of metal or coins by the IRA owner.
However, Congress created an important statutory exception to the previous general rule. The exception is that an IRA may invest in certain gold, silver, and platinum coins, and gold, silver, platinum, and palladium bars that meet applicable fineness standards, i.e., must be held by the IRA trustee or custodian, not by the IRA owner.
These rules also apply to traditional IRAs, Roth IRAs, SEP-IRAs, and SIMPLE-IRAs (these are categories of individual retirement accounts).
Due to the above statutory exceptions, IRAs can own certain precious metal coins and bullion.
Examples include U.S. Gold Eagle coins, Canadian Gold Maple Leaf coins, U.S. Silver Eagle coins, U.S. Platinum Eagle coins, and gold, silver, platinum, and palladium bars (gold bars) that meet applicable fineness standards. For example, gold bars must be 99.5% pure or higher, while silver bars must be 99.9% pure or higher.
So far, it has worked very successfully. However, the biggest practical issue is finding an IRA trustee and facilitating the physical transfer and storage of precious metal assets. Relatively few institutions are willing to act as trustees for precious metals IRAs.
None of the major agencies were reportedly involved. Companies willing to entrust precious metals IRAs include GoldStar Trust Company, Entrust Group Trust Group, American Estate & Trust Company, and New Direction Trust Company.
A voluntary trustee will arrange for the physical storage of the precious metal assets owned by the IRA. A major storage facility is the Delaware Depot in Wilmington, Delaware.
Cost and Market Statistics
Precious Metal IRA trustees usually charge a one-time account setup fee of about $50 to $100. An annual account management or maintenance fee, sending account statements, etc., is about $50 to $300. The amount depends on the account value and a storage management insurance annual fee, about 100 to 300 US dollars, or a value based on the storage assets.
Additional fees may be charged on the transaction, including donations, distributions, and commissions on purchasing and selling precious metals (perhaps 2% to 5%).
Meanwhile, buying an exchange-traded fund (ETF) that tracks the value of a particular precious metal is an option for those who do not want to deal with the physical ownership of precious metal coins or bars by individual retirement savings institutions.
In the past, there was concern that IRA purchases of shares in precious metals ETFs would be viewed as purchases of collectibles. Because under federal income tax rules, IRA distributions are considered taxable.
However, the IRS has said that IRAs can buy shares of precious metals ETFs classified as grantor investment trusts without such problems. Especially after the Private Letter Ruling (PLR), the IRS ruled that individual investors can buy shares in gold ETFs.